KEY DATA: Starts: +8.3%; 1-Family: +6.3%; Multi-Family: +13.3%/ Permits: +7.4%; 1-Family: +4.1%; Multi-Family: +13.9%

IN A NUTSHELL: “The home construction rebound was nice to see but that was not a major surprise given that activity had faltered the previous three months.”

WHAT IT MEANS: Housing has been a major concern as construction was on the downslide through the spring. That pattern was broken as builders picked up the pace quite sharply in June. The single-family sector improved solidly, but the really big increase came in the multi-family segment. This is a pretty volatile portion of the market and we do get double-digit increases or declines fairly often. For example, multi-family home starts more than tripled in the Northeast in June. So don’t read too much into the surge in the multi-family component and don’t be shocked if it slows in July. Still, this is where a lot of growth is expected to be seen, as Millennials pour into the housing market, so it is good that it is improving. Looking across the nation, The Northeast, not surprisingly given the rise in multi-family starts, led the way, followed by a large rise in the Midwest. However the number of starts was up modestly in the West and fell in the South.

Looking forward, permit requests rose solidly as well. The level of permits has been well above the construction rate and since builders are not doing a lot of spec construction, they should be using those permits soon. That implies potentially several more months of increases in construction. The only region where permit requests fell was in the Northeast. Developers in that part of the country probably used up all their permits in June putting up lots of apartment buildings.

MARKETS AND FED POLICY IMPLICATIONS: The rise in home construction in June, as well as some upward revisions to previous months numbers, hold out hope that the residential sector did not slow growth much in the second quarter. As with other sectors, a lack of workers is limiting the ability of builders to build. Land and input costs are also an issue. Thus, I don’t expect this part of the economy to add greatly to growth going forward. Still it would be nice if it does play a role in pushing up the growth rate. We get the second quarter GDP number on July 28^th and it doesn’t look like it will be near 3% unless firms failed to control their inventories. Private domestic sales should be in the 2% to 2.25% range, which is nothing great. But the pace of growth is not terrible. Stronger growth would put even more pressure on the labor markets. If firms cannot find workers with the economy growing at 2%, where will those workers come from if growth hit 3% or more? As for investors, the Obamacare repeal movement crashed and burned and you would think that would cause investors to think that similar problems could arise when the budget, tax cut and infrastructure bills are debated. Exuberance played a major role in the rise in the stock markets since the election. The political uncertainties should lead to some caution. But now people are saying that even a small tax cut and infrastructure-spending bill would be just fine. That seems to me that they are looking for any reason to be optimistic. We may not know for six months if that confidence was warranted.