Key Rate Indices

State of the Market

Recent economic releases and data highlights:

  • AIA: Architecture Billings Decline in April; Multi-family Billings Decline for 21st Consecutive Month: While the AIA’s Architecture Billings Index (ABI) score for the month rose from 43.6 in March to 48.3 in April, it indicates that billings continued to decline at the majority of firms (a score below 50 indicates declining billings).
    • Sector index breakdown: commercial/industrial (47.4); institutional (46.1); multifamily residential (45.6).
  • Building Permits (April): In April 2024, U.S. building permits dropped to their lowest level since December 2022, declining by 3% to a seasonally adjusted annual rate of 1.440 million units, matching the initial estimates released earlier.
  • Inflation/CPI (April): The U.S. annual inflation rate eased to 3.4% in April 2024 from March’s 3.5%, the highest since September, matching market forecasts. Inflation slowed for shelter (5.5% vs 5.7%). More on this later in the newsletter.
  • Jobless Claims: U.S. initial jobless claims unexpectedly fell by 8,000 to 215,000 for the week ending May 18th, below market expectations of 220,000. The claim count was lower than earlier in the month but remained above the February-April average.

U.S. Housing Market Shows Diverging Trends: Starts Divided, Permits Slipping

In April 2023, the U.S. housing market showed mixed signals, with Total Housing Starts increasing by 5.67% from March to reach 1.358 million units.

Despite this increase, starts are relatively flat year-over-year (YoY), down only 59 basis points. Actual numbers fell short of Wall Street analysts’ predictions which had anticipated seasonally adjusted housing starts to climb to 1.4 million units in April.

Single-family housing starts, which account for the majority of home building, decreased by 0.4% to a seasonally adjusted annual rate of 1.029 million units in April, but have increased by 17.7% YoY.

On the other hand, starts for housing projects with five or more units experienced a significant surge of 31.4% to a rate of 322,000 units in April, despite being down 32.92% YoY. This bifurcation in housing type highlights the varying demand, and ability to finance, for different types of residential properties.

The U.S. housing market continues to face a severe shortage, with only 728,000 housing units available on the market in the first quarter, compared to 1.145 million units before the COVID-19 pandemic. This shortage is expected to support new construction in the near future.

Looking ahead, permits for future construction of single-family homes dropped by 0.8% to a rate of 976,000 units in April, while multi-family building permits fell by 9.1% to a rate of 408,000 units.

CPI and Rental Inflation in April

The April CPI report aligned with analysts’ expectations, showing a seasonally adjusted 0.3% increase and a 3.4% rise over the past 12 months (not seasonally adjusted). Core CPI, excluding food and energy prices, also grew by 0.3% monthly and 3.6% annually.

The CPI Report: Key Takeaways and Market Impact

  1. Slowing Rent Inflation
    • Rent increased by 0.35% month-over-month (MoM) or 5.44% year-over-year (YoY) in March, down from 5.65% in the previous month and the lowest in nearly three years.
    • Rent has been relatively stagnant, and inflation indicators are finally reflecting this trend.
    • In his remarks at the 2023 Jackson Hole Symposium, Fed Chair Jerome Powell noted “The market rent slowdown has only recently begun to show through to [the overall inflation] measure. The slowing growth in rents for new leases over roughly the past year can be thought of as ‘in the pipeline’ and will affect measured housing services inflation over the coming year.”
  1. Core Inflation Close to Target
    • Excluding lagged Shelter inflation, CPI is, and has been around 2%.
    • The Alternative Inflation Index from Penn State puts March’s index at 2.025%, using more recent rental data than the BLS CPI.
  1. Market Reaction to the CPI Report
    • Treasury yields fell to more than five-week lows, with 10-year yields down 9 basis points at 4.356%, reaching as low as 4.340% – the lowest level since April 5.
    • Mortgage rates dropped below 7% for the first time since April 4th, providing some relief for potential home buyers.
    • Bitcoin surged over 7% to $66,106, briefly nearing $72,000 later in the week, as investors cheered the CPI report and its potential impact on monetary policy.

The upcoming release of the Personal Consumption Expenditure (PCE) index on Friday, May 31st, holds significant weight as it stands as the Fed’s favored measure of inflation. This impending data release is a pivotal metric in the Fed’s deliberations regarding potential rate cuts, and the markets’ continued expectation of two rate cuts before the end of 2024.

For more information, questions, or comments, please call or email.

Drew Daly

Managing Partner

C: (206) 228-6166