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A Flurry Of Economic Data Releases Left Stocks Unfazed This Past Week

A Flurry Of Economic Data Releases Left Stocks Unfazed This Past Week

A few economic data releases this past week will be of interest to investors, including housing starts, the consumer price index, and the index of leading economic indicators — all updated with data for April. In addition, on Wednesday, the Federal Reserve released its April meeting minutes. Once again, the data was uniformly positive. While not gangbusters, the data indicates the economy is on an even growth path, heading toward gradually lower unemployment, and, at some point, rising inflation.

 

 

The Fed's April minutes, released Wednesday, cited the economy's healthy growth trajectory. The Fed suggested that another rate hike in June remains on the table.

In April, the annual rate at which new residential houses was started, stood at 1.172 million. But the long-term mean rate of housing starts per year, based on U.S. Census Bureau data, is about 1.5 million. As the long economic expansion since The Great Recession is poised to continue, it is reasonable to expect housing starts will revert to a mean level of 1.5 million from the 1.2 million annual rate as of April 2016.

The 1.5 million annual growth rate in new residential housing is supported by U.S. population trends. The U.S. needs to create 1.5 million new houses annually to keep up with population growth of about three million annually.

The growth rate in housing construction directly impacts economic activity across the nation. In April 2016, residential construction activity was responsible for 3.4% of U.S gross domestic product (GDP). However, as the growth rate of residential housing slowly moves toward its annual mean rate of 1.5 million, housing starts generate about 5% of the U.S. GDP. That's a 1.6-percentage-point boost to economic growth.

The Consumer Price Index, better known as the inflation rate, was also released this past week. The inflation rate was just 1.1% for the 12 months through the end of April. The low inflation rate is largely attributable to the plunge in this period in gasoline prices. Since it is very unlikely that another plunge of this magnitude will occur in the next year, it is wise to examine inflation while excluding gasoline and food, the two most volatile components of the "headline" inflation rate. Without gas and food, the "core inflation rate" was 2.1% for the 12 months through the end of April. The underlying inflation rate is already at the Fed's 2% target rate. This, coupled with the Fed's minutes, raised fears on Wall Street of an interest rate hike in June.

Stocks rose on Friday, and the broad rally erased much of the losses from earlier in the week, when investors had sold over fears of rising interest rates.

The Standard & Poor's 500 rose 12.28 points, or 0.6 percent, to close the week on Friday at 2,052.32.

The S&P 500 was basically flat last week — unfazed by the week's flurry of economic data releases, which remained positive.

This article was written by a veteran financial journalist using data compiled by Fritz Meyer, an independent economist. While these are sources we believe to be reliable, this information is not intended to be used as financial advice without consulting a professional about your personal situation. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss.