Back to the Economy

Posted: Aug 22, 2017 12:01 AM
Back to the Economy

This week, and next, volume should be extremely low as many traders squeeze in last minute vacations, or in the case of Monday, a glimpse at the first total eclipse of the sun across the United States for the first time in nearly one hundred years. The timing is a perfect break for the nation, which needs a few distractions and time to settle down.

There are important things happening, including Treasury Secretary Mnuchin starting to move the ball on tax reform. After the embarrassing failure on Obamacare reform, Republicans cannot miss more low-hanging fruit. Tax cuts tied into reforms for small businesses and repatriation seems to be the easiest.

Meanwhile, the economy continues to gather steam.  Last week, the NY Fed 3Q17 GDP estimate edged over two percent to 2.09%, its highest estimate, and up from 1.54% on June 16.

Housing Trends

One reason the GDP needle continues to improve is the state of housing. Last week, housing starts and permits came in less than expected, but the details of the report cast a more positive light on housing and household formation. The slowdown is occurring in multifamily units like condos and co-ops. Look around your town and tell me there hasn’t been apartment overbuilding.


  • Multi-family starts 287,000 down 17.1% month to month and -35.2% from year earlier
  • Permits -12.1 month to month and 11.7% from year ago

Single Family housing meeting growing demand.

  • Starts were unchanged month to month but up 10.9% from year ago
  • Permits up 13%

The bottom line is apartment unit construction grinding to its slowest pace since 2013 could be good news as long as there is substantial growth in single family units. Long term, household formation will be the key to the sustainability of the economic rebound and the underlying stock rally.

Speaking of the rally, it has become wobbly, and even news that Wall Street cheered on Friday couldn’t stop sellers from lightening up into the weekend. These thinly traded end-of-summer months can send false signals, especially on the downside, so make sure to make key decisions based on fundamentals and actual news, not the hype-driven news cycle.