Underlying Housing Demand Remains Quite Strong

By | July 26, 2021

Welcome to FTR’s “Monday Morning Coffee “ blog. The following article is designed to keep busy executives up to date with the latest economic data releases. Released every Monday, this blog promises to keep our clientele updated with the latest weekly economic news and developments, highlighting its impact on the transportation, freight, and equipment markets. Hopefully, this will be an informative addition to the fine body of work associated with FTR.


World stocks perked up on Friday after a volatile week in which sentiment over the global economic outlook waxed and waned with each new headline on the Delta variant of the coronavirus. European stock markets opened broadly higher but Asian shares were largely lower for the day. The European Purchasing Manager’s Index climbed to 60.6 in July from June’s 59.5, the highest reading since July 2000. Europe’s STOXX 600 was up 0.5% and set for a fourth day of gains. In contrast, MSCI’s broadest index of Asian Pacific shares outside of Japan, slipped 0.7%., leaving it down 1.4% for the week. Investors are looking forward to the Federal Reserve’s meeting this week where more discussion about tapering is expected. Fed Chair Jerome Powell has repeatedly said that the labor market remains well short of target.

Wall Street gained ground for a fourth straight day on Friday, extending a rally that pushed all three major stock indexes to record closing highs as upbeat earnings and signs of an economic revival fueled investor appetite. The Dow Jones Industrial Average increased 0.68% to end at 35,061.69, while the S&P 500 gained 1.02% to 4,411.81 and the Nasdaq Composite rose 1.04% to 14,836.99. Second quarter earnings reporting is firing on all pistons, with 120 companies in the S7P 500 having reported, 88% have beaten consensus, according to Refintiv. Investors will be looking forward to this week’s two-day monetary policy meeting and clues for the timeframe for tightening its accommodative policies.

Last week was volatile for financial markets, as an upturn in new COVID cases jittered financial markets. The Dow Jones Industrial Average fell almost 726 points on Monday and the yield on the 10-year Treasury fell nearly 10 bps to 1.18%. The drop was surprising because the increase in COVID cases and the spread of the variant Delta was not earth breaking news. COVID cases have been increasing for several weeks in states with low vaccination rates. Markets bounced back for the remainder of the week, but it has become apparent that the COVID fight is not over, and new restrictions do have the power to impact confidence by threatening more shutdowns. On a global level, the situation is worse. Countries with low vaccination rates are seeing COVID cases rise rapidly and even those with high vaccination rates like Israel and the United Kingdom are seeing COVID infections rise. However, in the U.S., Israel and the UK, hospitalizations and deaths have not increased in proportion to the rise in infections. It appears that a high rate of vaccinations is limiting the severe outcomes that would require health officials to reimpose restrictions that would limit economic activity. It appears that the threat to the U.S. economy is low and the economy is safe. However, for the world, the struggle will continue. While most of Europe is recovering, parts of Asia and some low-income countries are ablaze with infections, mainly because they have low vaccination rates. The world’s struggle against the virus will continue to be prolonged time and the global economic recovery will be uneven.

Housing seems to be stabilizing over the last few months but supply chain bottlenecks and higher prices, along with labor problems may cool activity for a few months. Existing home sales rose 1.4% to 5.86 million units, ending a four-month decline. The turnaround is a reminder that while activity did cool under the weight of low inventories and sharply higher prices, underlying demand remains quite strong. Housing starts rose 6,3% in June to a 1.643 million pace. Building permits did drop for a third straight month, However, permitting has been running ahead of starts for months. Although housing activity could cool for a few months. But production of some building materials will build up enough to meet demand and start to slow price appreciation, as it happened with wood. Demand fundamentals will spark demand upwards again in a rapid fashion following signs of stabilization.

This week will provide some interesting insight on spending and incomes, new home sales, durable goods orders and the first release on Q2 GDP.

Latest Data

The U.S. Economy:

Housing starts increased 6.3% in June to a seasonal adjusted annual rate of 1.546 million, up 29.1% above the June 2020 rate of 1.273 million. Single-family start increased 6.3% to 1.091 million. Starts of five, or more units increased to 474,000 in June, up from 444,000 in May. Total permits fell 5.1% to a 1.598 million units total, an eight-month low. The fall in permits likely is reflecting hesitancy caused by expense building materials as well as shortages of labor and land. Reports of multi-month delays in the delivery of windows, heating units, refrigerators and other items have popped up across the nation, prompting builders to slow activity. Although the price of wood has come down, buyers are paying more for steel, concrete and lighting and are grappling with shortages of items like refrigerators. Single-family permits dropped 6.3% to a rate of 1.063 million, while the multi-family component slipped 2.6% to 535,000. Demand remains strong, underpinned by the dearth of homes available for sale. However, builders may delay projects for the next few months in order to let production catch up with demand.

Existing home sales rose 1.4% in June to 5.86 million annualized, fully reversing May’s losses and breaking the four-month losing streak registered since the beginning of the year. The recent dip in mortgage rates and a rebounding labor market lifted sales. Single0family and condo/co-op sales both rose 1.4% from the previous month. Sales rose in all regions except the South, where they were flat. The median existing home price increased 23.4% from a year ago to $363,300 in June. Higher prices are in part due to sales being concentrated in the upper end of the market. There were 1.26 million previously owned homes on the market, down 18.8% from a year ago. At June’s sales pace, it would take 2.6 months to exhaust the existing inventory, down from 3.9 months a year ago. Six to seven months is considered a normal healthy market.

The Chicago Fed National Activity Index was 0.09 in June, down from a revised 0.26 in May. The decrease suggests that there was some cooling in economic activity from May to June. Production-related indicators contributed 0.01 to the CFNAI, down from 00.26 in May. The contribution of the employment, unemployment and hours worked to the CFNAI moved down to 0.09 in June, from 0.15 in May. The sales, inventories and orders category contributed 0.06 in June from -0.04 in May. The three-month moving average came in at 0.06 in June, down from 0.08 in May. The index suggests that economic activity softened a bit in June from May but remains in positive territory.


Euro-zone economic activity expanded at the fastest monthly pace in over two decades in July as the loosening of more COVID restrictions gave a boost to services. The HIS Markit’s Flash Composite Purchasing’s Manager’s Index climbed to 60.6 in July from 59.5 in June, its highest reading since July 2000. Indicating that the expansion won’t slow, the new business index jumped to 59.7 from 58.7. The service index increased to 60.4 from 58.3. The factory index dipped to 62.6 in July from the record breaking 63.4 reading in June. Inflation is a concern as the price index held steady at 88.5. Shortages of some raw materials and semiconductors have hurt the auto industry in particular and has cooled production at some of Europe’s factories. Although business has picked up with the loosening of restrictions, there are worries about the growing number of COVID cases, associated with the Delta variant, that has emerged in the United Kingdom in recent weeks. Basically the outlook for the economy looks good, but new restrictions could follow if infections rise.

Important Data Releases This Week

The June new home sales report will be released on Monday, July 26 at 10:00 AM.  New home sales came in at 769 thousand in May. High prices and limited supply are impacting sales, despite strong underlying demand. We project sales will hit 775K for June.

The June advance durable goods report will be issued on Tuesday, July 27 at 8:30 AM. We expect durable goods orders to advance 2.3% for June. The gain should be led by aircraft based on monthly orders from Boeing. The important capital goods orders will also be positive, although only advancing 0.1% in May, the trend has been strong. Companies have been investing in equipment, in part because labor is tight. The data will point to Q2 capital investment ahead of the GDP report.

The first release of Q2 GDP report will be released on Thursday, July 29 at 8:30 AM. The second quarter was robust and we think real GDP will come in at a 9.1% annualized rate. If that projection is on mark, real GDP will have exceeded the pre-pandemic peak by 1.3%.  Details will provide a lot of insight to the economy. Consumer spending likely was strong. Business investment will also have been robust. Housing will be an important contributor although cooling a bit in recent months. The second quarter will be the peak of economic activity, but with the drivers still intact, the remainder of the year will be decent.

The June personal income and outlays report will be released on Friday, July 30 at 8:30 AM. Personal income likely fell 0.2% in June, again hit by fading federal stimulus. Excluding federal transfers, income likely advanced 0.5%, the same increase as in May. We expect spending to have picked up by 0.5%. Again, price appreciation is eating up those income gains The core GDP deflator rose 0.5% in May and will match that increase in May.

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About Steve Graham

Steve is one of the premier analysts in the transportation equipment industry. On a monthly basis Steve tracks and analyzes in detail the trailer and heavy-duty truck industry. Aside from following these two sectors he is also instrumental in helping our customers analyze the economy and its impact on transportation and transportation equipment.