Housing starts hit five-year low; jobless claims down

Key Concepts:

• Housing Starts (Seasonally Adjusted Annualized Units)
• Building Permits
• Single-Family Homes vs. Multifamily Homes
• Home Builder Inventory
• Initial Jobless Claims
• Continuing Claims
• Interest Rates (10-Year Treasury, 2-Year Treasury)
• Federal Reserve (The Fed) Policy
• Higher for Longer (Interest Rates)
• Tariffs and Inflation Expectations

1. Housing Starts and Building Permits Data

• Housing Starts (May): 1,256,000 seasonally adjusted annualized units. This is significantly below the expected 1,350,000. The last time housing starts were this low was in May 2020.
• Building Permits (May): 1,393,000, below the expected 1,420,000. The lowest since June 2020.
• Significance: Both housing starts and building permits are weaker than expected, indicating a potential slowdown in the housing market.

2. Single-Family vs. Multifamily Homes

• Single-Family Starts: The speaker expected weakness in single-family starts due to rising inventories of new single-family homes.
• Home Builder Inventory: The increasing inventory of new single-family homes is a concern for home builders, potentially affecting future construction.

3. Jobless Claims Data

• Initial Jobless Claims: 245,000, exactly as expected. The previous week's number was revised upwards from 248,000 to 250,000.
• Trend: Initial claims have been somewhat elevated for the past three weeks, hovering just below the 250,000 mark.
• Historical Context: The last time initial claims were over 250,000 was in the first week of October (whisker under 260,000).
• Continuing Claims: 1,945,000, marking the fourth consecutive week above 1.9 million. This level is comparable to November 2021.

4. Interest Rates

• 10-Year Treasury: Around 4.35%, up a basis point or two.
• 2-Year Treasury: 3.93%, down three basis points.
• Context: These figures are being discussed on the second day of a Federal Reserve meeting.

5. Federal Reserve (The Fed) Policy and "Higher for Longer"

• Personal Preference: The speaker states a preference for "higher for longer" interest rates.
• Fed's Stance: The speaker observes that the Fed does not seem inclined to ease monetary policy.
• Potential Reasons for Not Easing: The speaker mentions the possibility of the Fed using tariffs as a reason not to ease, even without definitive information on tariffs.
• Critique of Fed's Reasoning: The speaker expresses skepticism about the Fed's theorizing on how ongoing discussions of tariffs might be changing inflation expectations, finding the logic questionable.
• Fed's Discretion: The speaker acknowledges the Fed's ability to act as it sees fit, defending either side of an argument.

6. Synthesis/Conclusion

The housing market data (housing starts and building permits) indicates a potential slowdown, particularly in single-family homes due to rising inventories. Jobless claims data shows a slight increase in continuing claims, while initial claims remain relatively stable. Interest rates are being closely watched during the Fed meeting, and the speaker believes the Fed is unlikely to ease monetary policy, even if it means using questionable justifications related to tariffs. The overall tone suggests caution about the housing market and skepticism about the Fed's rationale for its policy decisions.