5/16/14 update

With almost all corporate earnings already reported for the quarter, this week saw a host of economic data that impacted the markets.  Small and Mid-Cap indices declined a bit early this week but have recovered today.  Overall, the U.S. markets remained relatively flat.  Some highlights from the economic data include:

Housing Data

A report this morning showed that U.S. home construction unexpectedly jumped last month, a potential signal that housing market may be regaining its footing after the harsh winter depressed activity.  Home building surged in April as warmer weather helped builders break ground on new homes at the fastest pace this year. The Commerce Department said this morning that housing starts rose 13.2% to a seasonally adjusted annual rate of 1.07 million, up from 947,000 in March.  The increase in housing starts was dominated by multifamily construction, such as condominiums and apartment buildings, which increased almost 40% to a 423,000 annual rate, while work on single-family properties rose 0.8% to a 649,000 rate in April. Building permits issued for housing construction, a gauge of future activity, rose 8% to a seasonally adjusted annual rate of 1.08 million, signaling that activity may accelerate in coming months.

Despite this, confidence among U.S. homebuilders dropped in May to the lowest level in a year. The National Association of Home Builders’ Housing Market Index gauge fell to 45 this month, the weakest since May 2013, from a revised 46 in April.  Readings less than 50 mean fewer respondents report good market conditions. “Builder sentiment is becoming more in line with the market reality of a continuing but modest recovery,” NAHB Chairman Kevin Kelly. “However, builders expressed some optimism that sales will pick up in the coming months.” While current sales declined, prospective buyer traffic rose to the highest level in four months, and builders were more optimistic about the sales outlook for the next six months.

Consumer Sentiment

Consumer Sentiment suffered its biggest one-week drop last week since the federal government shutdown in October as attitudes toward the buying climate and personal finances soured. The Thomson Reuters/University of Michigan Consumer Sentiment index dropped to 81.8 this month, after reaching a nine month high in April.  This puzzled economists, as many of the normal contributing factors that would negatively affect this composite were not present.  Gas prices remained steady and no effect on consumer inflation expectations, the markets are near all-time highs, and housing prices have remained strong.  It was suggested that perhaps this drop is simply a statistical outlier in an otherwise strengthening economy.  We will have a better idea as the this month progresses.   

Yellen Speaks

Fed Chair Janet Yellen said the U.S. economy has further to go to achieve full health and predicted that small businesses will play a vital role in the recovery.  Job creation is “crucial to this process,” and small companies “are responsible for a large share” of new employment, Yellen said in a speech to owners of small companies and officials from the U.S. Small Business Administration. “America has come a long way since the dark days of the financial crisis, and small businesses deserve a considerable share of the credit for the investment and hiring that have brought that progress,” Yellen said. “Although we have come far, it is also true that we have further to go to achieve a healthy economy, and I am certain that small businesses will continue to play a critical role in reaching that objective.”

Eurozone

One of the hardest impacted countries in the Eurozone, Portugal is set to exit their bailout this weekend.  This comes at a time when unemployment still stands at roughly 15 percent of the workforce.  While the fiscal budget has improved and borrowing costs lowered, the country still faces risks to its recovery as GDP dropped in the first quarter due to dependence on foreign demand in a shaky global environment.   The need for further reform and austerity measures continues for the Southern European nation, with an election year set for 2015.

Elsewhere, European car sales rose in April, but at the slowest pace in five months and highlights doubts about economic growth in the EU contributed to a drop in Germany, whose car sales dropped 3.6% in April.  “The fall of car sales in Germany reflects consumers’ and investors’ concern that other European countries’ problems could have an impact internally,” said Gianluca Spina, dean of Milan Polytechnic business school. “The latest economic figures from France and Italy are worrisome for the entire region.”

 

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