Steady recovery but no boom for U.S. housing

There was a surge in permits, but under closer scrutiny the data shows that multi-family activity drove the majority of growth in June.

Robert Johnson, CFA 20 July, 2015 | 5:00PM

It was another week of big ups and downs for world markets. Generally, European and U.S. equities both did well for the week, notching 2%-3% gains. A lot of that strength was due to news of a settlement of the Greek situation. Our view has always been that Greece is not a big deal to the world economy either way, and that there was no real reason for the sell-off of the past several weeks. So now that things have settled down the markets are bouncing back. China's second-quarter GDP growth rate of 7% and the first weekly stock market gain in the past four weeks helped world equity markets, too. In general, second-quarter earnings news from the banks and a couple of high-profile tech companies also gave a little extra boost to the markets.

Economic news for the week was a mixed bag. Retail sales were very disappointing, indicating that consumers are still not in a buying mood. Retail sales were down 0.3% month to month, led by an already known artificial decrease in auto sales. There were a lot of other poorly performing categories and very few big gainers. Year-over-year retail sales growth also trended back down to more normal levels, but not enough to sound a panic alarm. Also keep in mind that the previous month of retail sales growth was stunningly strong. On the other hand, housing news was very strong in June based on the starts and permits data released on Friday, which should provide a big boost to the second half as we have been hoping for some time. Industrial production indicated that the manufacturing sector has at least stopped getting worse, but isn't likely to be a big help for the economy in 2015.

The markets really held up well despite all the talk from the Fed, which was perhaps the biggest surprise this week. In speeches and testimony on Capitol Hill, the Fed said that barring a big economic surprise, its intent is to raise rates this year. (With Greece and China stabilized for now, the Fed now has two fewer things to worry about.) Poor retail sales probably raised hopes that the Fed wouldn't raise rates this year, but Friday's inflation report and strong house data seemingly dashed those hopes. The U.S. 10-Year bond had a quick shot up earlier this year in anticipation of higher rates, but has been surprisingly stable lately as those fears become reality. This week, the 10-year rate was down very modestly from 2.39% to 2.35%.

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Robert Johnson, CFA

Robert Johnson, CFA  Robert Johnson, CFA, is director of economic analysis for Morningstar.

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