Just as the Fed looks like it’s gearing up for its second rate hike in ten years, we get some disappointing news from the US economy.  Building permits in the US, whose growth has been trending down, are now contracting on an annual basis (we look at the 3m average change vs the 3m average change one year ago, which is -0.24%; on an unsmoothed basis it is -5.26%).  In the US, manufacturing and construction have been on the weak side, and consumption has been holding up relatively well, although not as well as many assumed with the fall in the oil price.

The fact housing looked relatively supported kept us from being more negative on the US economy, but the fall in building permits necessarily makes us more circumspect.  Falling building permits tend to lead to lower growth, and falling employment (top chart).  For the moment, though, building permits may not fall much further.  The bottom chart shows the change in mortgage spreads tends to be a reasonably good 6m lead for building permits.  Investors should keep an eye on building permits and mortgage spreads to track the health of the economy.


Source: Bloomberg, Macrobond and Variant Perception