NEWS / Foreign Exchange

Housing Starts & Building Permits (February)

Housing Starts & Building Permits (February)

Actual: 1525, 1532K Consensus: 1445, 1550K Prior: 1399K, 1571K

Starts rebounded 9% in February after falling 14%. The pace of residential construction rose to 1.525 million units for the month; but was 28% below the pace of a year earlier. Recently, changing weather conditions have increased the variability of residential construction. For instance, untypical benign temperatures spurred housing starts in the South and West, while unusually colder temperatures dampened building activity in the Northeast and Midwest regions. But start??™s underlying trend ??“measured by its sixmonth moving average- is still decreasing. Permits issuance ??“a gauge of future construction activity- slipped 2.5% in February to a seasonally adjusted annual rate of 1.532 million units. Though less exposed to weather changes, building permits continued exhibiting a downward trend.

Existing Home Sales (February)

Actual: 6.69M Consensus: 6.30M Prior: 6.44M

Although favored to some extent by unusually weather conditions, it is noteworthy that sales of previously owned homes rose for the third consecutive month; reinforcing the idea that housing demand could be stabilizing. This was the result of better affordability conditions. However, the outlook for sales has turned uncertain since the subprime crisis could take many potential buyers out of the market. Regionally, sales climbed 3.9% in the Midwest, 14.2% in the Northeast and 1.6% in the South, but remained unaltered in the West. The median price increased to $213,000 in February from $211,000 in the previous month. When compared to the level of a year earlier, the median price slipped 1.3%. This is the eighth consecutive month that prices fell on a year-over-year basis. Since last August, the median price has slipped by an average annual rate of 2.4%. Inventories month-supply slowed to 6.7 in February down from the maximum of 7.4 in October.

Monetary Policy Announcement (March 20-21st meeting)

Fed Funds: 5.25% Consensus: 5.25% Prior: 5.25%

As widely expected the FOMC kept rates steady at 5.25% for the sixth consecutive meeting. Although the wording of the statement had important changes, we judge that the statement remains consistent with an extended pause. However, the probability of policy easing probably increased, while that of further rate hikes declined sharply. The statement signaled greater uncertainty on the economic outlook among FOMC members. The wording was carefully redacted to transmit the message that the FOMC is no longer considering further hikes, but at the same time it is not ready to ease monetary policy; thereby gaining flexibility. This reflects that the FOMC is uncertain on whether mixed data anticipates a sharper economic deceleration or if weakness in some indicators proves to be transitory. FOMC??™s main concern continues to be ???the risk that inflation will fail to moderate as expected???. As a result, although the wording remains hawkish, it is closer to neutral. While some fedwatchers may be tempted to consider these changes as the first step to a rate cut, this movement will occur only if economic activity deteriorates and the inflation outlook remains stable. On the contrary, if downside risks to growth decrease, the statement??™s flexibility would be consistent with an extended pause. For further details see: Fedwatch, March 21st.