Key US data reviewed and previewed - Nomura

Analysts at Nomura offered a review of the US data from overnight and a preview of the next upcoming key data.

Key Quotes:

Review

"Import prices: Stabilization in core consumer goods (excluding fuels, food, and autos) import prices confirms our view that much of the weakness in CPI core goods price inflation is attributable to domestic factors. Although top-line import prices fell 0.2% m-om, the decline was driven by ongoing weakness in petroleum prices. Excluding petroleum imports, import prices were up 0.1%. In particular, core consumer goods import prices fell 0.1% m-o-m, but were unchanged on a y-o-y basis pointing to stabilization after years of weakness. This development appears consistent with our view that much of the recent softness in CPI inflation could be attributable to domestic factors amid waning downward pressure from external factors (read more: Monthly Inflation Monitor, 14 July 2017). Core CPI inflation accelerated slightly to 0.1% (0.119%) m-o-m in June from 0.063% in May. However, core goods prices (-0.1%) remained weak, declining for the fifth straight month. Previously, the Fed has attributed the deviation of actual inflation from its 2.0% goal to external shocks such as the past appreciation of USD and lower crude oil prices. In the absence of external shocks, the weakness of core goods prices, if persistent, could have the potential to affect the future path of the policy rate. 

NAHB housing index: Homebuilders’ sentiment, while still at a high reading, deteriorated slightly amid rising concerns regarding margin pressure from higher building material costs. The NAHB Housing market index fell to 64 in July, an eight-month low, from a downwardly revised 66 in June. Both current and future single family home sales indexes fell slightly to 70 and 73, respectively. The respondents reported that they are increasingly concerned over rising building material prices, particularly lumber, although buyers’ interest in new homes remains strong. The price of lumber has been trending upwards since February when tensions built over proposed import tariffs on lumber from Canada. Consumer income gains have been steady, but acceleration in the price of new homes may hurt affordability.

Preview:

Housing starts: We expect housing starts to increase 2.6% m-o-m to an annualized pace of 1120k units in June (Consensus: 6.2% to 1160k). Housing starts declined for three consecutive months from March to May, but much of the decline was attributable to weakness in multifamily housing starts. In May, multifamily starts fell 9.7% to a 298k pace after falling for four consecutive months. Although multifamily starts tend to display sharp mean reversion, permits for multifamily construction in prior months were not strong. This suggests that a sharp rebound in multifamily starts may be unlikely. Single family starts, on the other hand, have shown steady growth in recent months on a y-o-y basis despite three consecutive monthly declines. Given incoming single family permit data, we think that single family construction starts will increase modestly in June. 

Altogether, we think moderate growth in single family housing starts should contribute positively to top-line growth, while there is a risk that multifamily starts continue to slow given the recent trajectory. For building permits, we forecast a moderate 1.0% m-o-m increase to the annual pace of 1180k for June (Consensus: 2.8% to 1201k), following a sharp 4.9% decline in May. A decent improvement in residential construction sector employment and a high reading of homebuilders’ assessment of six-months ahead housing market sales suggest steady activity in the industry."