The bond market has taken on a very summer-like feel and it is not because temperatures could top 90 degrees here in the Northeast, later this week. The mixed data and the Fed’s commitment to a gradual, but historically moderate, monetary policy renormalization has left bond market participants with little to do. Add to this the unlikeliness of seeing meaningful fiscal policy reforms and the bond market feels a little sleepy. Summer may have indeed come early, this year.
Seasonality affects more than just market behavior. It can also influence business activity in various sectors of the economy. Few, if any, sectors are more influenced by the seasons than housing. Thus, market participants were eagerly awaiting April Housing Starts and Building Permits data. Economists were expecting a sharp rebound from soft weather-influenced March data. The rebound left economists disappointed. This was mainly because there was no rebound.
April Housing Starts fell 2.6%. The Street had expected an increase of 3.8%. This follows a March print of -6.6%, revised slightly higher from -6.8%. An April print of -2.6% might be swallowed by economists more easily, if there was a surge in Building Permits, as that would augur for stronger future construction. Hopes for a future surge in new home construction were dashed when April Building Permits printed at -2.5%. The data indicated that it was multi-family starts and permits which were responsible for much of the contraction. This is important as multi-family home construction has been the bright spot of the residential construction sector.