Week of June 23
Between A Rock And A Hard Place
Last week was another week of data highlighting that the economy is slowly throttling back. New home sales fell, and the first quarter GDP report showed that consumer spending eroded, but at least the durable goods report was positive and the cease fire between Israel and Iran appears to be holding. Meanwhile the inflation data in both the U.S. and Canada showed that the easing in inflation is stalling. Not a great place to be if you’re a central banker. Looking ahead to the Fed meeting at the end of July I think they hold…unless the data turns REALLY sour over the next couple of weeks.
I’m really excited to once again be presenting at the ENR 2025 Midyear Construction Forecast on July 17th at 2pm alongside Ken Simonson and Anirban Basu. There’s a lot to talk about so I hope you tune in – you can register here.
Important Data Points From The Past Week
Canadian Consumer Price Index
Canadian inflation held stead in May at 1.8% on a year-over-year basis, while the core inflation slowed mildly from 2.6% to 2.5%. Goods inflation mostly cooled off over the month, but that was offset by higher vehicle prices and services.
Like the U.S. Fed, the Bank of Canada (BoC) is clearly stuck. On one hand, core inflation’s progress towards a 2% goal seems to be stalled, and it’s doubtful that inflation will make a marked improvement any time soon. However, the Canadian economy is clearly slowing so they may need to step in and act no matter what the inflation numbers are suggesting. There is just over a month till the BoC’s next meeting and one more inflation read, but barring any tilting of the seesaw one way or the other I think they hold rates steady.
Conference Board Consumer Confidence
After jumping in May, consumer confidence slipped in June but remained above the April nadir. Both the present and expectations component of the index fell – the Present Situation Index lost 6.4 points while the Expectations Index dropped 4.6. Notably, the latter component remains well below the threshold that usually indicates an impending recession.
The cutoff for the date for the survey was June 18 – after Israel first bombed Iran, but before the U.S. launched strikes. Despite the attacks oil prices and the stock markets have remained mostly calm and could work to allay the worst fears in consumers. That being said, they are in a nervous state of mind and if the current shaky cease fire doesn’t hold confidence will fall further.
U.S. New Single Family Home Sales
New single family homes sales plunged in May, losing 14% from April to a seasonally adjusted annual rate of 623,000. This was the weakest month for sales since October 2024. The supply of unsold homes on the market rose to 9.8 months (assuming sales at the current rate), an increase of 1.5 months from April. The median price of new homes sold rose 4% to $426,000.
It's clear that economic uncertainty and a slowing labor market, in addition to high mortgage rates are weighing on would-be home buyers. If there’s positive news out of this, the rising supply of unsold homes should suppress price growth, resulting in marginal improvement in affordability. Today’s report doesn’t change my outlook for a gain in sales in 2025, but that won’t help construction, which should contract this year.
U.S. Gross Domestic Product (GDP)
U.S. GDP was revised lower for the first quarter in the third estimate, falling from an annualized -0.2% in the previous iteration to -0.5% in the latest. The drag on GDP in the first quarter was due to a surge in imports as firms sought to pre-order goods in advance of tariffs. Business investment was somewhat of an offset to that, but perhaps the most concerning portion of the data was that consumer spending was moribund in the first three months of the year.
Despite the decline in overall GDP, I don’t think this is a sign of recession, since both consumer spending and business investment did rise on a quarter-over-quarter basis, and if net exports were “normal” relative to the past couple of years, GDP would have posted a small gain. Regardless, the US economy is slated to slow as the year goes on as firms slow their hiring and consumers retrench. Recession incoming? Odds remain uncomfortably high, but at least one positive piece of news last week is the cease fire between Israel, the U.S. and Iran. Fingers cross that it holds.
U.S. Durable Goods Orders
Durable goods orders posted a healthy pop in May driven mostly by aircraft orders. But still taking out that noisy data shows that orders for capital goods also recovered from a weak April. If you believe the corporate reports, capex is slated to ease back in the second half so I would expect orders will follow suit over the coming months. That being said, firms seem fully in on productivity enhancing measures so perhaps IT might be the one exception.
This report has a lot of great underlying data related to the construction space, and I’ve spent the last month or two building out some simple models to forecast some of the nominal dollar series that I think are most applicable. You can check them out here.
U.S. Personal Consumption Expenditure (PCE) Deflator
Inflation ticked higher in May, with the PCE deflator increasing 0.1% from April, while the core measure (ex. food & energy) rose 0.2% over the month. On a year-on-year basis, the headline measure moved from 2.2% to 2.3%, while core accelerated from 2.6% to 2.7%.
This inflation read highlights that broadly speaking the impact of tariffs seems to be limited – at least so far. I’m still expecting inflation to accelerate through the year with core inflation hitting 3% for the full year. From the Fed’s perspective, the data reinforces their wait-and-see attitude towards cutting rates further.
What I’ll Be Watching This Week
A short week with the 4th of July on Friday, but some important data is being released. In the U.S. we’ll see data on construction spending, vehicle sales, and the all-important jobs report on Thursday. Also, a holiday week in Canada with Canada Day on Monday and no major data releases coming out.
What I Watched Last Week
How many times have you been in a supermarket and wondered how the food got from there to here? For me it’s pretty much every time I step in one. This 60 min documentary from biologist Shane Campbell-Staton answers that question. A great watch!
How Can I Help?
I’m taking on a limited number of clients to help with bespoke analysis of the economy and construction and what it means for your company. I’m also available if you’re in need of a speaker at an event or someone to come talk to leadership groups on the state of the economy, demographics, real estate, and construction.
If you want to discuss either option, sign up for a spot on my calendar.
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