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Builders Busy, but Bleaker in Outlooks

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Construction on new homes increased for the first time in four months during June. Housing starts rose 8.3 percent to a 1.22 million annualized pace, the fastest pace since February. The pick-up in activity was a combination of increased activity in single- and multi-family homes. Building permits increased 7.4 percent, the largest gain since November 2015. Despite the renewed activity in June, housing starts are up just 2.1 percent from a year ago. A lack of inventory has been stalling the housing market all year. Homebuilders are beginning to feel less optimistic about future activity as the year progresses. The latest homebuilder sentiment report declined to 64 this month, seven points below the highest level this year. Builders cite rising material prices, particularly lumber, along with a shortage of usable land and skilled workers as the key factors hurting the business. The outlook for sales conditions, buyer traffic and sales over the next six months fell to the lowest level in over five months.

Other Key Indicators this Week:

Leading Index – The Leading Economic Index rose 0.6 percent in June to 127.8. This was the strongest reading since January. The index is comprised of 10 components measured by The Conference Board to assess turning point patterns in the economy. The increase in June points to continued growth in the U.S. economy with a possible slight improvement in GDP growth during the second half of 2017. Most of the strength came from a large contribution from building permits, followed by an increase in manufacturing orders. Nine of the 10 categories added positively to the index.

Central Bank – The European Central Bank is the second central bank in a week to back pedal on plans to end current stimulus programs. Following a two-day meeting in Frankfurt, ECB President Mario Draghi acknowledged the necessity for "a very substantial degree of monetary accommodation" to allow inflation pressures to increase. Draghi noted the continued improvement in the euro-area economy, while remaining concerned that a weakness in energy prices is keeping inflation low. What happens at foreign central banks’ meetings is not usually the subject of this report, but this time is different. For those who may have forgotten, it was Draghi’s comments two weeks ago that caused bond yields to jump 16 basis points almost overnight. Suddenly, it seemed that four central banks were beginning to shift from an easing to a tightening program. Now, the ECB appears to be joining the Federal Reserve with a softer "wait and see" approach.

Between the Numbers:

A recent survey shows Americans remain optimistic about their jobs, the economy and their own fortunes. The latest Bloomberg National Poll revealed 58 percent of respondents are moving closer to realizing their career and financial goals. This is the highest percentage since the first poll four years ago. A majority of people expect the stock market to continue moving higher this year, while 30 percent anticipate a decline. Forty percent of Americans think the value of their home will increase this year, but only 30 percent expect their retirement savings to improve.

Sarina Freedland – Senior Investment Officer

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