Overseas Headlines – May 16, 2017


Declines in U.S. Housing Starts, Permits Show Sector Weakness

Key Takeaways

The results indicate that residential construction is at risk of dragging down growth in the second quarter, lessening any economic rebound after weakness in the previous period. Other indicators of housing demand remain healthy, suggesting that part of the decline in starts and permits could be attributed to shortages of labor and ready-to-build lots, as well as unusually warm weather that may have moved up construction earlier in 2017. Steady hiring and healthier finances are likely to continue to drive home purchases in coming months, echoed by a rise in homebuilder confidence to the second-highest level since 2005.

Other Details

• Single-family house construction rose 0.4 percent to an 835,000 rate from 832,000 the prior month
• Work on multifamily homes, such as apartment buildings and condominiums, fell to an annual rate of 337,000; data on these projects can be volatile
• Northeast and South regions posted declines in starts, while Midwest and West showed gains; Northeast starts were the lowest since February 2015
• Report includes revisions going back to January 2015
• Data released by the Census Bureau and Department of Housing and Urban Development in Washington


German investor morale hits near two-year high as risks fade
The mood among German investors improved further in May to reach its highest since July 2015, a survey showed on Tuesday, in a further sign that political uncertainties which clouded the growth outlook for Europe’s biggest economy are evaporating. The Mannheim-based ZEW research institute said its monthly survey showed its economic sentiment index rose to 20.6 from 19.5 points in the previous month. The Reuters consensus forecast was for a rise to 22.0. The positive sentiment reading came as the economy picked up speed in the first quarter of 2017. Companies invested more, consumers and the state continued to spend and exports soared despite the threat of rising protectionism. Germany’s economy, Europe’s biggest, grew by 0.6 percent in the quarter from the quarter before, when it expanded 0.4 percent, the Federal Statistics Office said last Friday. “The latest figures on gross domestic product confirm that the German economy is in good shape,” ZEW President Achim Wambach said in a statement. “The prospects for the euro zone as a whole are gradually improving, further strengthening the economic environment for German exports,” he added. A separate gauge measuring investors’ assessment of the economy’s current conditions rose to 83.9 points from 80.1 in April. This compared with the Reuters consensus forecast which predicted a reading of 82.0.


China seen sacrificing some growth to reduce debt risks
China’s growth is set for its weakest patch since the global financial crisis as authorities pull back on the stimulus that helped the economy get off to an unexpectedly strong start this year, and keep funds tight to deter risky lending. After clocking 6.9 percent in the first quarter thanks to spending on infrastructure and a property boom that policymakers want to rein in, analysts surveyed by Reuters reckon economic growth will just about make Beijing’s target of 2017 of 6.5 percent as it slows over the rest of the year. Massive debt – standing at nearly 300 percent of GDP – and serious budgetary imbalances mean Beijing can’t carry on pump priming. The brakes went on in April, when annual growth in fiscal spending dropped to 3.8 percent from 21 percent the first quarter. And worries about speculative bubbles have forced the central bank to tighten short term liquidity, while trying to keep medium term funding available for investment. “Noticing how serious policymakers seem to be at the moment about reining in financial risks, it’s not impossible we’re going to see a significantly lower economic growth target next year,” said Louis Kuijs, an economist at Oxford Economics in Hong Kong. Scope for further tightening in monetary policy could be limited if economic growth became uncomfortably slow.