Implications: Housing starts bounced back in May and continued the upward trend that began in 2011. Although the vast majority of the gain was due to the volatile multi-family sector and overall starts came in below consensus expectations, single-family starts are up 16.3% from a year ago and the total number of homes under construction has increased for 21 consecutive months. We expect this trend to continue. Although housing permits declined 3.1% in May, they are up 20.8% from a year ago. Single-family permits were up in May and up 24.6% in the past year. Based on population growth and "scrappage," housing starts will eventually rise to about 1.5 million units per year (probably by 2015). The bottom line is that no one should get worked up over every zig and zag in the data. Sometimes one indicator ticks down, like building permits; other times an indicator, like housing starts, will surge up above the underlying growth trend. That's what a recovery looks like. In other recent housing news, the NAHB index, which measures confidence among home builders, rose to 52 in June from 44 in May. This was the highest level since March 2006 and the eight point upward move was the largest monthly gain since September 2002. In other news yesterday, the Empire State index, a measure of manufacturing sentiment in New York, rose to a three month high of +7.8 in June from -1.4 in May. These data are consistent with our forecast that real GDP is growing at a 2.5% annual rate in the second quarter.
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