Tom Moeller

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Housing starts increased 6.8% (22.3% y/y) during February to 1.769 million (SAAR) and more than recovered the January decline to 1.657 million, revised from 1.638 million. It was the highest level of starts since June 2006. December starts also were revised up to 1.754 million from 1.708 million. The Action Economics Forecast Survey expected 1.700 million starts during February.

Starts of single-family units rose 5.7% (13.7% y/y) in February to 1.215 million after declining to 1.150 million in January. Multi-family housing starts improved 9.3% (46.6% y/y) to 554,000 from 507,000.

By region, housing starts in the Northeast rose 28.7% (19.3% y/y) in February to 130,000. Starts in the Midwest improved 15.3% (66.2% y/y) to 226,000. In the South, housing starts rose 11.4% (31.9% y/y) to 1.017 million units. To the downside, starts in the West fell 11.4% (-8.1% y/y) to 396,000.

Building permits fell 1.9% (+7.7% y/y) to 1.859 million from 1.895 million in January. Permits to build single-family homes eased 0.5% (+5.4% y/y) in February to 1.207 million units. Permits to build multi-family homes fell 4.4% (+12.2% y/y) to 652,000.

The housing starts and permits figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Severe winter weather depressed January building activity.
- Regional changes remain mixed.
- Building permits decline.

U.S. Housing Starts Rebound in February

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) declined 3.8% (+5.3% y/y) during May to 97.2 after falling an unrevised 2.3% in April to 101.0, following moderate gains in each of the prior four months. The recent high was 104.9 in September of last year. The level of home affordability remained 8.1% higher than its low of 89.9 in October 2023. The latest level was 45.8% below the high of 179.2 in April 2020.

The decline in affordability in May occurred as the median price of an existing single-family home rose 2.3% (1.3% y/y) to $427,800, and mortgage rates rose to 6.90% from 6.81% in April. The price compared to the record $432,900 in June 2024. The rise in mortgage rates left them above their a low of 6.26% in September of last year, though below a 7.70% high in October of 2023. They remained well above a December 2020 low of 2.73%. In May, the principal & interest payments rose 3.3% (-1.1% y/y) to $2,254 per month, well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a higher 25.7% of income during May, up from a low of 14.0% of income in April 2020.

The rise in housing costs in May was accompanied by a deterioration in median family income. It fell 0.6% (+4.1% y/y) to $105,204 after rising 1.0% in April. Qualifying income rose 3.3% (-1.1% y/y) to $108,192 after rising 3.5% in April.

Housing affordability declined m/m across the country in May. The index fell 5.7% (+3.1% y/y) to 122.7 in the Midwest, though it remains the most affordable region of the country. In the South, the index declined 2.5% (+7.5% y/y) to 103.0 and the affordability index in the Northeast declined 6.4% (-1.3% y/y) to 86.1. In the West, where homes are the least affordable, the index fell 2.4% (+5.6% y/y) to 69.3 in May.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

**Demystifying the Federal Reserve's Balance Sheet** from Fed Governor Christopher J. Waller can be found [here](https://www.federalreserve.gov/newsevents/speech/waller20250710a.htm).

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- Home prices & mortgage rates continue to rise.
- Median income declines.
- Affordability falls across country.

U.S. Housing Affordability Weakens in May

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Initial claims for unemployment insurance declined to 227,000 (+2.3% y/y, SA) in the week ended July 5, from 232,000 in the previous week, which was revised from 233,000. Initial claims have declined for four straight weeks. The Action Economics Forecast Survey expected 234,000 initial claims for last week. The four-week moving average of initial claims weakened to 236,000 from 241,000. It was the lowest level since the last week of May.

In the week ended June 28, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – rose to 1.965 million (5.9% y/y) in the last week of June after easing to 1.955 million in the prior week. The figure has risen sharply since a low of 1.833 million in the second week of April. 

At the end of June, the insured rate of unemployment (the number of beneficiaries as a percent of covered employment) was 1.3% for the fifth straight week. It has increased from 1.2% since the beginning of 2023 and 1.0% in November 2022.

The insured unemployment rate varied greatly across individual states and territories. In the week ended June 21, the highest unemployment rates were in New Jersey (2.27%) California (2.15%), Washington (2.02%), Massachusetts (1.94%) and Pennsylvania (1.83%). The lowest were in South Dakota (0.28%), Florida (0.39%), Alabama (0.49%) and Virginia & Kentucky, both at 0.53%. Rates in other notable states include Tennessee (0.60%), Texas (1.25%) and Illinois (1.67%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Unexpected decline to lowest level since mid-May.
- Continuing claims continue to rise.
- Insured unemployment rate remains elevated.

U.S. Initial Unemployment Insurance Claims Fall in Latest Week

Robert Brusca

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Germany is HICP inflation measure (12-month) came in at 2% in June, below its May reading 2.1% but above its April reading of 1.9%. There have been a few recent readings for Germany at 2% or below and these are the first traces of 2% inflation in Germany since mid-2021 when inflation first began to climb above the 2% target that is the objective by the ECB for all of the European Monetary Union.

**Inflation progress is evident**
The German domestic CPI is also up by 2% year-over-year, and this is the fifth time that it has posted an increase of 2% or less since August 2024. This is good news because it suggests that German inflation isn't just flirting but perhaps trending and will eventually stabilize around the 2% mark. However, Germany also still has work to do because the domestic CPI gauge excluding energy in June is still at 2.5% year-over-year; that pace dropped from 2.8% in May and it's generally been higher over the past year with some fluctuations up as high as a 3.1% year-over-year pace, as was the case in December. But it's also been as low as 2.6% in August of last year. Core inflation in Germany remains stubborn. We see that clearly from its domestic CPI excluding energy reading. The core reading in the HICP series is not yet available for June but the core reading from May came in at 2.9%, an acceleration from 2.8% in April.

**Sequential inflation**
The sequential inflation readings in this report are quite good for domestic inflation, and even for the ex-energy reading, but not quite as good for the HICP which is the measure of inflation used by the European Central Bank. German HICP inflation is 2% over 12 months, drops to 0.9% over 6 months, and then the annualized rate rises to 2.2%, again, over 3 months. For the domestic measure of inflation, the annualized CPI rates are 2% over 12 months, 1.5% over 6 months and 1% over 3 months - a clear decelerating pattern. That decelerating pattern is echoed for the domestic CPI excluding energy which is at 2.5% over 12 months, 1.7%. over 6 months and 1.3% over 3 months.

**Inflation Diffusion -monthly**
Inflation diffusion, which calculates the breadth of inflation for the domestic CPI, shows diffusion of 27.3% for June, 54.5% for May, and 18.2% for April. The June and April readings clearly point toward more decelerating than accelerating inflation as they are below the neutral 50% mark. The May report suggests just slightly more acceleration than deceleration at 54.5%.

**Sequential Diffusion**
Sequentially, diffusion over 12 months, 6 months and 3 months gives us readings below 50% on each horizon which is good because that points to inflation decelerating rather than accelerating. However, the diffusion readings are consistently rising from 18.2% over 12 months, to 27.3% over 6 months, to 45.5% over 3 months – and moving more toward diffusion neutrality.

**Weak oil has been a tailwind for lower inflation**
Inflation progress has been helped along by weak oil prices in June. Brent oil prices measured in euros rose by 6.7%; they had fallen by 4.1% in May and by 10.7% in April. These are month-to-month calculations. Sequentially, Brent oil prices fell by 20.7% over 12 months, they fell at a 23.4% annual rate over 6 months, and they're falling at a 30% annual rate over 3 months. All of these metrics should have helped the inflation numbers to look more contained. When inflation falls over a relatively long period of time, it also has a chance to permeate non-energy measures and cause even non-energy inflation to edge a little bit lower. For now, weakness in oil prices has been a tailwind for German inflation progress.

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**Summing up**
The inflation report in June logs a month-to-month headline gain of 0.2% against domestic prices being unchanged in the month and prices also unchanged excluding energy. These are good developments. However, German inflation still has more work to do as the core or ex-energy metrics testify. At the same time, there's been some revival in the economy. And there's going to be a step-up in spending for military purposes. The step-up in activity, prompted in part by more military spending, could pause or slow the inflation progress that's underway. It's something to keep an eye on.

Germany

German Inflation Settles Lower

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Wholesale inventories fell 0.3% (+1.4% y/y) during May after edging 0.1% higher in April. The decline was revised from a 0.2% fall in the advance release issued last week. A 0.3% decline had been expected in the Informa Global Markets survey. Durable goods inventories fell 0.8% during May (-0.0% y/y) after increasing 0.1% in April. Furniture & home furnishings inventories were off 2.2% (+4.5% y/y) after weakening 0.8% in April. Professional & business equipment inventories declined 1.7% (+5.1% y/y) and reversed April’s 1.6% increase. Motor vehicle & parts inventories were off 1.5% (-2.6% y/y) following a 0.6% rise. Machinery inventories fell 0.8% (-2.0% y/y), about as they did in April. Electrical equipment inventories eased 0.1% (-3.2% y/y) after falling 0.5% in April. To the upside, hardware & plumbing equipment inventories rose 1.3% (8.1% y/y) following two straight 1.8% increases. Lumber inventories rose 1.0% (3.4% y/y) after falling sharply in both of the prior two months. Inventories of nondurable goods rose 0.5% during May (3.9% y/y) after rising 0.2% in April. Drug inventories surged 1.8% (5.1% y/y) after a 2.0% gain while apparel inventories gained 0.5% (-0.7% y/y) following a 0.9% rise. Grocery inventories rose 0.3% (11.0% y/y) after a 1.2% rise. Paper inventories rose 0.3% (6.9% y/y), reversing the 0.7% April decline, while chemical inventories dropped 1.9% (-1.8% y/y) after declining 1.2% in April. Petroleum & petroleum product inventories rose 2.5% (-8.1% y/y) following a 7.5% drop. Farm product inventories declined 3.8% (4.9% y/y) after two straight months of 2.6% decline.

Wholesale sales declined 0.3% (+4.8% y/y) in May after holding steady in April. A 0.2% increase had been expected in the Action Economics Forecast Survey. Sales of nondurable goods declined 0.8% (+2.3% y/y) after easing 0.1% in April. Paper sales slipped 0.8% (0.7% y/y) after rising 0.9% in April. Drug sales eased 0.3% (+12.0% y/y) after rising 0.2% in April. Petroleum sales weakened 2.8% (-13.3% y/y) after declining 3.3% in April. In contrast, sales of apparel strengthened 1.9% (8.1% y/y), the same as in April. Grocery store sales increased 1.0% (6.7% y/y) after a 1.4% gain. Sales of durable goods rose 0.2% (7.6% y/y) following a 0.1% uptick in April. Auto sales rose 3.6% (5.2% y/y) after easing 0.1% in April. Sales of electrical equipment strengthened 1.2% (15.7% y/y) following a 0.4% decline. Metals & minerals sales gained 0.5% (0.2% y/y) following a 1.8% decline. Working lower, furniture sales declined 1.6% (+3.6% y/y) after a 2.3% increase. Professional equipment sales eased 0.3% (+8.1% y/y) following a 1.0% increase. Machinery sales weakened 0.9% (+5.2% y/y) after increasing 0.8% in April.

The May inventory to sales ratio in the wholesale sector stood at 1.3 for the fourth straight month. The durable goods I/S ratio eased to 1.67 after two months at 1.69, down from the 1.81 high in March of last year. The ratio ranged from a 2.86 high for machinery to 0.95 for electrical equipment. The nondurable goods I/S ratio rose to 0.95 after two months at 0.93. The I/S ratio for apparel was 2.04 in May while for petroleum, it was 0.33.

The wholesale trade figures are available in Haver's **USECON** database. The expectations figure for inventories is contained in the **MMSAMER** database. Expectations for sales are from the **AS1REPNA** database.

The minutes of the latest **FOMC meeting** can be found [here](https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20250618.pdf).

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- Inventory decline reverses two months of increase.
- Sales decline is first in four months.
- I/S ratio steadies at three-year low.

U.S. Wholesale Inventories & Sales Decline in May