Economic Data Update ...

Housing starts for May were a bit disappointing, while that month's building permits blew away expectations.

May housing starts figure came in at an annual rate of 708K versus the Street's 722K expectation.  Although this was a 'miss', we note that April's data was revised up by 27K to 744K.  Single-family homes starts grew 3.2% from April and 26.2% from May '11.  MDU's dipped 24.2% from last month, but grew 31.6% Y/Y.  Regionally, housing starts in the Northeast, Midwest and South declined 20.3%, 13.3%, and 6.1% from April, respectively; while they grew 14.4% in the West.  There was growth in all regional Y/Y figures, with the South leading the way by having housing starts 39.5% higher than last year.

May's building permits had a print of 780K versus the 730K consensus.  Permits for single-family homes were up 4.0% m/m, while MDUs with more than five units were up 17.7%.  Both types also saw Y/Y growth of 19.9% and 39.3%, respectively.  There was growth in building permits within all regions compared to April '12 and May'11.  The South led the way in monthly growth at 11.1%, while the West and East had Y/Y growth of 30.7% and 29.5%, respectively.

While this may first appear to be positive for the market, we must note that the market is looking for bad economic news in order for the likelihood of a QE3 by the Fed to increase.  In addition, the housing figures may not be that good as they indicate we might see inventories increase during 2H '12 and early next year, which is not necessarily good news given lack of much wage growth combined with the deteriorating state of employment.  But then again, these days not too many take what may happen six months from now into consideration.  By the way, it appears that a QE3 continues to be priced into the market as equities keep going up.  Although many large banks, such as Goldman Sachs, believe that the Fed will announce monetary easing, we wonder - what if they don’t?