Down and prior month revised down and permits way down as well. All in line with the previously discussed deceleration in bank real estate lending that began just after the elections in November:

Highlights

The bad economic news keeps building, this time in the housing sector. Housing starts fell an unexpected 5.5 percent in May to a far lower-than-expected annualized rate of 1.092 million with permits likewise very weak, down 4.9 percent to a 1.168 million rate.

All components show declines with single-family starts down 3.9 percent to a 794,000 rate and permits down 1.9 percent to 779,000. Multi-family starts fell 9.7 percent to 298,000 with permits down 10.4 percent to 389,000. Total completions did rise 5.6 percent to a 1.164 million rate, which adds supply to a thin market, but homes under construction slipped 0.7 percent to 1.067 million.

Adding to the bad news are downward revisions to starts including April which is now at 1.156 vs an initial 1.172 million. Looking at the quarter-to-quarter comparison, starts have averaged 1.124 million so far in the second quarter, down a very sizable 9.2 percent from 1.238 million in the second quarter. Permits, at an average of 1.198 million, are down 4.9 percent.

Residential investment looks to be yet another negative for second-quarter GDP.

Trumped up expectations continue to unwind:

Highlights

In the least optimistic reading since the November election, the preliminary June consumer sentiment index fell to a much lower-than-expected 94.5. This compares with 97.1 for May and 97.7 for preliminary May.

Both components are down with expectations at 84.7 for a 3 point decline from May which points to less confidence in the jobs outlook. The current conditions index is at 109.6 for a 2.1 point decline which is a negative indication for consumer spending in June.

The report notes that this month’s decline reflects easing confidence among both Republicans and Democrats. Inflation expectations are mixed with the 1-year outlook unchanged at 2.6 percent but with the 5-year up 2 tenths and also at 2.6 percent.

Life in the Slow Lane: U.S. Bank Lending Falls Behind a Laggard

By Mike Bird

June 15 (WSJ) — After six years of meager growth, eurozone bank lending to nonfinancial corporations increased by an annual 2.4% in May, its fastest pace since mid-2009. The deceleration in U.S. commercial and industrial loan growth has been steep. Annual growth has fallen from over 10% a year ago to just 2% in June, according to the latest figures published by the Federal Reserve. Europe’s has accelerated from 1.8% in the same period. The last time corporate credit growth was faster in the eurozone than the U.S. was in early 2011, when the full debilitating effect of the sovereign-debt crisis was yet to feed through to local data.

So I was reminded that I did write and post in November about what might happen if rates went up in anticipation of Fed hiking in a weak loan demand environment. (Thanks David for reminding me!) I was thinking that some portion of whatever borrowing interest there was might no longer qualify, causing a decline in the growth of borrowing to spend by businesses as well as consumers.

If rates go up when loan demand is strong enough so the borrowing continues, the added loan payments flow back to earnings for the lender, and govt. pays more interest, so it can all not only keep going but accelerate. However, if demand is weak, and rates go up as they did late last year due to anticipation of Fed hikes, borrowing and spending can decelerate, as per the charts:

A couple of other indicators that started sagging in November:

Highlights

Moderate is the message from the PMI services index which finishes May at a lower-than-expected 53.6, down 4 tenths from the mid-month flash but up a solid 1.1 points from final April and up 5 tenths from April’s flash. Most readings rose back to strength early in the year including new orders with backlog orders showing their first build since January. Employment is at a 3-month high with optimism on the general outlook, however, remaining subdued. There are badly needed signs of inflation in the report with input costs on the rise and selling prices also moving higher. This is a positive though far from robust report. Up next is the ISM non-manufacturing report which has been running much stronger than the services PMI with the Econoday’s consensus at 57.0.

Highlights

The weak run of second-quarter data continues with April’s 0.2 percent decline in factory orders. The durable goods component fell 0.8 percent in the month reflecting a give back in aircraft orders and wide weakness for most readings. Orders for non-durable goods rose 0.4 percent reflecting moderate gains for food and energy.

The ex-transportation reading, which excludes aircraft, managed only a 0.1 percent gain in the month with core capital goods orders (nondefense ex-aircraft) also up only 0.1 percent. April’s shipments of core capital goods, which are an input into second-quarter GDP, also rose only 0.1 percent which is another negative in this report. And only a marginal positive for GDP is a 0.1 percent rise in total inventories. Total shipments were unchanged in the month keeping the inventory-to-shipments ratio unchanged at 1.38.

Positives in the report include a 0.6 percent rise for motor vehicle orders and a 1.6 percent rise for computers. Also total unfilled orders, which contracted through most of last year, are up 0.2 percent for a second straight small gain.

Another positive in the report is an upward revision to March factory orders which now stand at 1.0 percent following February’s 0.8 percent gain. But the prior gains were driven by aircraft as the ex-transportation reading could move only modestly higher. The factory sector is not living up to the promise of the high-flying regional reports and, instead of accelerating this year, now appears to be struggling.

As expected with prior month’s spending revised up .2. Annual growth rates still not looking so good, as per the charts:

Highlights

April was mostly a favorable month for the consumer who benefited from strong wage gains, kept money in the bank, and was an active shopper at least compared to the first quarter. Consumer spending opened the second quarter with an as-expected 0.4 percent gain with strength in durables spending, including vehicles, offsetting another subpar increase, however, for services at only 0.3 percent. Personal income rose 0.4 percent in April with the wages & salaries component posting an outsized 0.7 percent gain and offsetting weakness in proprietor income and interest income. The savings rate held at 5.3 percent for a third straight month.

Inflation data in this report, which are the FOMC’s key inflation gauges, are more subdued than the spending readings. The core PCE (less food & energy) managed a 0.2 percent monthly gain but the year-on-year rate slipped another 1 tenth to 1.5 percent. This is the lowest rate since December 2015 with this year’s weak pressures having erased a full year of improvement. Overall prices also rose 0.2 percent with this year-on-year rate also lower, down 2 tenths to 1.7 percent.

A small positive in the report is an upward revision to March spending from no change to plus 0.3 percent. That’s a positive, however, that falls into the first quarter, not the second which is the focus right now. Consumer spending put in a respectable April but nothing spectacular which some had been expecting given positive seasonal factors including the inclusion of Easter. But the inflation readings are very quiet and won’t be raising expectations much further for a rate hike at the June FOMC.

Health care premiums count as personal consumption expenditures and you can see how they have influenced total pce which is now weakening again:

Trumped up expectations coming down:

Small business hires fall in May, but employees got raises, Paycheck survey shows

By Berkeley Lovelace Jr.

May 30 (CNBC) —

Small business hiring fell in May, but wages continued to rise, Paychex says.

The Small Business Jobs Index now has its weakest three-month change since July 2009.

“Small business owners now seem to be taking a more wait-and-see approach to hiring,” Paychex President and CEO Martin Mucci says.

Looks like I’m now officially mainstream with the latest paper I wrote with Professor Silipo published in a mainstream economics journal:

Dear Warren Mosler,

Your paper “Maximizing price stability in a monetary economy” that has just been published today on “Journal of Policy Modeling” has been found by Peerus.
Peerus is an App that monitors your scientific field – Journals, Authors (colleagues / competitors), Keywords – and identifies new papers as soon as there are published.

Last month revised lower and low and below expectations this month. Again, in line with decelerating credit data which means persistent weakness in GDP:

Highlights

Based on the consumer and based on inflation, FOMC members won’t be feeling much pressure to raise rates at least not any time soon. Consumer spending was unchanged in March, even weaker than Econoday’s 0.1 percent consensus. More startling is the weakest showing in 16-1/2 years for core PCE prices which fell 0.1 percent to take down the year-on-year rate by a sizable 2 tenths to 1.6 percent.

Income is also disappointing, up only 0.2 percent with the wages & salaries component posting a very weak 0.1 percent rise. Consumers nevertheless managed to move money into the bank as the savings rate rose 2 tenths to 5.9 percent (which is another factor behind the weak spending).

The core PCE index is the key inflation gauge for the FOMC and prior to this report members were expressing confidence that it was stable and generally headed toward their 2 percent target. And overall prices which moved above target in February are now back below target, falling a monthly 0.2 percent with the year-on-year rate down a steep 3 tenths to 1.8 percent. First-quarter economic data proved surprisingly weak even by first-quarter standards. The economy has catching up to do.

Last month revised higher but followed by a much lower than expected number this month as the annual rate of change continues to work its way lower. And note the drop in non residential spending, where a strong gain was posted in the Q1 GDP estimate:

Highlights

Data on construction spending are subject to unusual volatility, evident in today’s report which came in far below expectations, at minus 0.2 percent vs Econoday’s consensus for a 0.5 percent gain. These results for March, however, are offset by a 1.0 percentage point upward revision to February which now stands at a very strong 1.8 percent.

March’s weakness is tied to a sharp 1.3 percent decline in the private nonresidential component, where spending was especially weak for commercial units as well as office units. Public spending was also weak with educational building down for a 2nd straight month. The positives in the report are in housing with multi-family units extending their strong run with a 2.0 percent monthly gain, supported by a gain for single-family units and another strong month for home improvements.

It’s hard to get a gauge on this report because of its revisions and volatility, and the general weakness in nonresidential construction contrasts with the enormous strength of investment in nonresidential structures in Friday’s first-quarter GDP report. The housing side is more clear with gains backed up by strength in underlying permits and strong demand for new housing. Next up on the construction sector will be Friday’s employment report and construction payrolls which have been mostly solid so far this year.

ISM manufacturer’s trumped up expectations continue to revert, as does the Markit manufacturing PMI: