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<\/figure>\n\n\n\nWeighing on plans for future construction most were the Northeast and Midwest regions, declining sharply during the month. Northeast regional permits declined 23.6% m\/m while the Midwest dropped 15.2%. The South and West grew, however, gaining 4.3% and 3.8%, respectively. The multi-family asset class, which is heavily funded by regional banks, was the primary area of concern, dropping 9.7% m\/m while single-family served to alleviate some of the damage, gaining 3.1% during the period. Within starts, modest gains were hampered by weakness in the Northeastern and Southern regions and Midwest single-family, which dropped 23.4%, 6.3% and 20.5%. Areas of strength were found in the Western region and in Midwestern multi-family. <\/p>\n\n\n\n
Despite the significant weakness in construction activity, homebuilder sentiment has improved with the May National Association of Home Builders\/Wells Fargo Housing Market Index climbing to 50, its first time above 50 since July. The residential market is struggling with low inventory as many homeowners are reluctant to sell because they don\u2019t want to give up mortgages with low interest rates. While interest rates for new mortgages are still high compared to a few years ago, they have declined slightly this year, which may encourage more individuals to buy homes. This combination of lower mortgage rates and tight inventory is shoring up homebuilder sentiment.<\/p>\n\n\n\n
\nThe possibility of another 25-bp hike when Chairman Powell takes the mound on June 15 has risen from the ashes and is now up to 24%. A tougher and tighter Fed is buoying the dollar, with the Dollar Index up 38 bps to 102.95.<\/strong><\/p>\n<\/blockquote>\n\n\n\n
As the bond market\u2019s expectations of higher-for-longer short-term interest rates shift into better alignment with the Fed\u2019s, the equity market has been relieved by President Biden emphasizing this morning that he will continue discussions with top Republicans until an agreement is made. Equity markets are recovering off of yesterday\u2019s losses, with the S&P 500 Index up 0.3%. The cyclically tilted small-cap Russel 2000 is leading the way this morning, buoyed by regional banks with the former up 1.2% and the latter up 5.3%. The yield curve is moving higher led by the shorter-end, this time due to Fed tightening expectations moving higher as debt ceiling concerns weaken. The 2-year Treasury yield is up 7 basis points (bps) to 4.14% while the 10-year is up 2 bps to 3.57%. Traders have digested recent Fed commentary and rate hike expectations have shifted from expecting a cut in September to now being split between a cut and a pause. Also, the possibility of another 25-bp hike when Chairman Powell takes the mound on June 15 has risen from the ashes and is now up to 24%. A tougher and tighter Fed is buoying the dollar, with the Dollar Index up 38 bps to 102.95. While U.S. oil inventories rose sharply for the second consecutive week as reported by the U.S. Energy Information Administration this morning, oil traders are focusing on the positives which include U.S. purchases of crude to refill its Strategic Petroleum Reserve alongside a forecast of record global demand of 102 million barrels per day in 2023, driving WTI crude oil up 1.8% to $72.10. <\/p>\n\n\n\n
Recent earnings reports illustrate how inflation is crimping consumer spending. Consider the following examples:<\/p>\n\n\n\n
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- TJX Companies, Inc., an off-price retailer of home furnishings and apparel with store brands such as T.J. Max and Marshalls, posted first-quarter earnings per share (EPS) of $0.76, beating the consensus estimate of $0.71 and the EPS of $0.49 for the year-ago quarter. The company generated revenues of $11.8 billion, up 3% from $11.4 billion in the first quarter of 2022. Inflationary-weary shoppers are increasingly searching for lower-priced items and TJX has been a beneficiary of that trend, with increased traffic to its retail locations driving a same-store sales increase of 3%. TJX operates stores in nine countries and experienced a 1.3% negative impact on net sales growth due to adverse currency exchange rates on the back of a strong dollar. With a strong quarter completed, the company upgraded its fiscal-year EPS guidance to $3.49 to $3.58. It previously estimated fiscal-year EPS of $3.39 to $3.51. Its shares were up 3.5% earlier in the session but are now unchanged on the day.<\/li>\n\n\n\n
- Target, which operates retail stores that offer apparel, home items and groceries, posted first-quarter EPS of $2.05, exceeding the consensus estimate of $1.74, but down from $2.16 for the year-ago quarter. Its sales revenues, however, climbed slightly year-over-year (y\/y) from $24.8 billion to $24.9 billion and same-store sales were virtually flat y\/y, which was consistent with analysts\u2019 expectations. Target reported that budget-conscious customers have cut back on discretionary spending, which caused its online sales to decline y\/y. However, in-store purchases, which tend to consist of non-discretionary items such as food and diapers, increased 0.7% on a y\/y basis. The company has responded to the shift in spending patterns by reducing its inventory of discretionary items by 25%. The company is also implementing measures to combat shoplifting and theft from organized crime. The issue has been trimming about $500 million from its profits annually as violent incidents in its stores have been increasing. Target maintained its fiscal 2024 earnings guidance of $7.75 to $8.75 per share while analysts estimate an EPS of $8.27 a share. The company says it expects comparable same store sales to either decline or produce a low-single-digit increase. Its shares are up 2.5% on the day.<\/li>\n<\/ul>\n\n\n\n
Real Estate Headwinds Challenge Economy<\/strong><\/h2>\n\n\n\n