Housing Starts Bounced Back, Up 5.0% in May… That brings housing starts to 1.35 million per year, the fastest pace since 2007.
What it means – Housing starts are 20.3% higher than a year ago, which is impressive given the ho-hum pace of building in the spring. But every silver lining has a cloud, and with this report the cloud is permits. Building permits dropped 4.6% to 1.301 million units, which is obviously slower than the current rate of housing starts.
This doesn’t bode well for completions and sales in September and October. It’s likely that lagging permits are due to a labor shortage in the industry instead of weak demand. This should keep prices high as the market deals with short supply.
Existing Home Sales Fell 0.4% in May, Down 3.0% From Last Year… Existing home sales dropped to 5.43 million units per year.
What it means – Even though sales fell from April, home prices rose 2.7% to a record $264,800. The rising price of homes without a comparable jump in income explains the slow down. Buyers simply can’t afford homes right now. Supply improved modestly, from 4 months’ worth to 4.1, but it will take a break in prices for activity to pick up.
It’s worth remembering that new home sales are about 10% of the real estate market. Most of the action is in existing homes, so when this area lags, it weighs down the entire industry.
Same Store Sales Up 4.7% Over Last Year, Fourth Week in a Row of Sales Over 4%… Reiterating rising retail sales from last week, the Redbook report showed strong sales at chain stores over the last month.
What it means – Strong consumer demand in the waning days of the second quarter will drop right to the bottom line of the GDP report. This bolsters the case that the Atlanta Fed’s GDPNow model, which shows GDP growth over 4.7%, could be on the right track, even though housing is dragging it down a bit.
Pessimism can still be found about the rest of the year, but it’s obvious the U.S. economy had a pretty good second quarter.
European Central Bank President Mario Draghi Cautious on European Interest Rates… Mr. Draghi noted that interest rates in the eurozone should remain at historically low levels until at least September 2019. Investors had expected rates to move up in June of next year.
What it means – With the Federal Reserve raising rates in the U.S. and shrinking its balance sheet, any dovish stance by the ECB drives down the euro. This is exactly what the ECB wants to happen. As the euro sinks, European exports get cheaper, driving up trade. With European GDP sliding backward, Draghi and Company want to do anything they can to keep economic activity humming along.
The move also helps the ECB placate Italy and other restive nations. As the common currency falls, these countries get a bit of a break on their exports outside of Europe as well. But therein lies a big part of the problem. The weaker euro only helps when exporting to non-euro countries. Because these countries trade mostly with other European nations that share the euro, they get no benefit from changing exchange rates. This is at the center of the problems with the euro zone, and what will eventually lead to a new version of the arrangement.
Some European leaders, like Marcon of France and now Merkel of Germany, advocate one massive fiscal budget. But that would involve nations giving up more local control. It’s hard to see how such a proposal would gain any traction.
Keeping Deutsche Bank AG (DB) alive may be the catalyst for unpleasant changes. Since October 16, 2009 DB’s stock price has dropped from $ 84.93 to $ 11 on Friday. That is an 87% decline. There must be a few bankers in the EU who are worried.
Japanese Prime Minister Shinzo Abe Announces Plan to Attract 500,000 Guest Workers to Japan by 2025… The nation is plagued by a lack of workers in construction, farming, accommodations and elder care.
What it means – Demographics are destiny. Japan is an old nation that’s getting older. By 2030, an additional 7.9 million people will age out of the workforce, joining the growing retiree class. There are currently 1.56 job openings for every person available to work. Many jobs simply go unfilled, causing disruptions in health care and the hotel industry.
Rising wages would solve some of this, but because retirees dominate the consumer class, retailers must bow to the demands of those on fixed incomes. Guest workers could alleviate some of the pain, but the Japanese are famously resistant to foreigners. Abe’s plan will limit the scope of work available to guest workers, but that will limit the attractiveness of the plan.
Canada Legalizes Recreational Marijuana… The Canadian government moved to legalize the drug and now provincial governments will work on implementation. Buyers should be able to purchase pot by mid-October.
What it means – This move makes Canada only the second nation after Uruguay to legalize recreational pot. Canadian officials expect to raise $400 million in taxes off of pot sales this year, and create a multi-billion dollar industry. Medical marijuana has been legal in Canada since 2001, so the country has almost two decades of experience in growing and regulating crops.
Other countries will likely follow suit, acknowledging both their failed attempts to eradicate pot use and the lack of side effects compared with other illegal drugs such as cocaine and heroin, as well as pot’s favorable comparison to alcohol.
U.S. Supreme Court Rules States Can Charge Sales Tax on Out of State Retailers… Overturning previous rulings, the Supreme Court gave states the authority to charge sales tax on all e-commerce sales to their residents.
What it means – Sales tax is the responsibility of the buyer, meaning the consumer, not the retailer. States require retailers to collect the tax as a matter of convenience. But if a retailer isn’t within a state’s jurisdiction, then we consumers were supposed to pay the tax. Right. No one does.
So, out-of-state retailers basically gave consumers a way to avoid sales tax. That put brick and mortar retailers at a disadvantage and robbed states of their taxes. This decision closes that loophole. The big question becomes compliance. Will online retailers have to figure out every single tax owed on every transaction in every jurisdiction, such as transportation taxes, sales tax, and economic development taxes?
Or will states impose one statewide rate on out of state retailers to make it easy? That’s a fight for another day.
Data supplied by Dent Research/Delray Beach Publishing
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