Category Archives: Finance & Economics

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Yesterday, the US Bureau of Economic Analysis reported that US GDP growth slowed to 1.5% on an annualized basis in Q2/2026, falling short of market expectations for a 2.1% gain. Almost all of the weakness stemmed from exceptionally strong imports, which subtracted 1.5 percentage points from the headline figure. However, private spending – our preferred measure of cyclical conditions, which makes up 85% of the economy and excludes volatile government spending and trade – accelerated to a 4% annualized rate in Q2, its strongest pace in three years. As today’s chart shows, IT capex continued to rise sequentially, consumer spending recovered from a sluggish Q1, and growth broadened to residential and other business investment following several soft quarters. The latest figures validate our thesis that the US economy is poised to accelerate in 2027. After a gain of 2% this year, our baseline scenario is for GDP growth to pick up to 2.3% in 2027.

Housing’s share of the economy was 15.8% in the second quarter of 2026, according to the latest estimates of GDP produced by the Bureau of Economic Analysis. This share is down from 15.9% in the first quarter and is at the lowest level since 2019. Residential construction, measured by residential fixed investment, rose for the first time in over a year, while households’ expenditure on housing services fell due to lower household consumption of utilities. The more cyclical home building and remodeling component–residential fixed investment (RFI)–was 3.7% of GDP, even with the previous quarter. The second component, housing services, was 12.1% of GDP, down from 12.2% in the previous quarter. The graph below plots the share for housing services and RFI, along with housing’s total share of nominal GDP.

Real gross domestic product (GDP) increased at an annual rate of 1.5%  in the second quarter of 2026, according to the advance estimate released by the U.S. Bureau of Economic Analysis (BEA). In the first quarter, real GDP increased 2.1 percent. The contributors to the increase in real GDP in the second quarter were increases in consumer spending, investment, and exports that were partly offset by a decrease in government spending. Imports, which are a subtraction in the calculation of GDP, increased. Compared to the first quarter, the deceleration in real GDP in the second quarter reflected a downturn in government spending and decelerations in investment and exports that were partly offset by an acceleration in consumer spending. Imports increased more in the second quarter than in the first quarter.

The Federal Reserve held the federal funds rate at a target range of 3.5% to 3.75% at the conclusion of its July policy meeting. There were three dissenting votes, all of which supported raising the federal funds rate by 25 basis points. The July monetary policy hold marked the fifth consecutive hold, following 75 basis points of cuts at the end of 2025. The central bank noted that “economic activity is expanding at a solid pace despite elevated uncertainty.” The Fed also stated that this uncertainty is due in part to the conflict in the Middle East. Additionally, Chairman Warsh noted that the economy has shown “impressive resilience” in the face of these headline risks. …With respect to inflation, the Fed stated that “inflation remains elevated” relative to the central bank’s two percent target. Importantly, the Fed attributed these inflation challenges to “supply shocks,” including the energy sector.

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The Conference Board’s Consumer Confidence Index fell 1.4 points to 90.8 in July. Consumers’ assessment of the present situation weakened for a third consecutive month, while expectations remained subdued. The labour market component also weakened as fewer respondents described jobs as plentiful, suggesting that job security is becoming a greater concern for households. This weakening extends beyond the latest confidence survey. The employment-to-population ratio has fallen sharply this year, while the share of consumers saying jobs are hard to get remains elevated relative to recent lows. This helps explain why the unemployment rate may understate labour market softness. Participation has declined due to discouraged workers abandoning their job search, and unemployed workers who remain in the labour force are taking longer to find new employment. Beyond a steady unemployment rate, weakness in other indicators all point to a labour market that is losing momentum. 

Cambridge, Massachusetts  – Annual spending on home improvements and repairs is expected to continue losing momentum through mid-2027, according to the latest Leading Indicator of Remodeling Activity (LIRA) from the Joint Center for Housing Studies of Harvard University. Year-over-year growth in renovation and repair spending is expected to slow to just 0.5 percent in the second quarter of 2027. “Growth in remodeling permitting and retail spending on building products have flattened recently, suggesting that renovation activity is cooling,” said Rachel Bogardus Drew, Director of the Remodeling Futures Program at the Center. “Our forecast suggests this will lead to a third straight quarter of decelerating year-over-year growth, with spending projected to be $519 billion through mid-2027.” “Reduced housing starts and broader economic uncertainty are also limiting stronger gains in remodeling spending,” said Chris Herbert. “Until home sales rebound from current low levels, remodeling expenditures are likely to stay at this pace.”

June inflation data provided some relief for consumers and the bond market. Headline inflation slowed from 4.2% to 3.5% and core inflation fell back to 2.6%. While still above the Fed’s target of 2%, the progress on inflation was a result of the Iran war ceasefire. However, renewed hostilities and the end of the ceasefire are placing upward pressure on oil prices. Rising energy costs are expected to push July inflation higher. Additional pressure will come from a renewed administration effort to establish tariffs. Inflation remaining in the 3% range likely eliminates any hope for an additional Federal Reserve rate cut for 2026. And some believe the new Warsh-led Fed may increase interest rates before the end of the year. Inflation is affecting building materials as well. Residential construction input prices were 6.2% higher than a year ago, including a 4.6% increase for building materials. Given this, 2026 will be the second consecutive year of declines for single-family home building.

The average long-term U.S. mortgage rate climbed this week to its highest level in nearly 12 months, pushing up borrowing costs for prospective homebuyers at a time when rising oil prices are already squeezing household budgets. The benchmark 30-year fixed rate mortgage rate rose to 6.58% from 6.55% last week, mortgage buyer Freddie Mac said Thursday. One year ago, the average rate was 6.74%. The rate has ticked higher three weeks in a row. Higher mortgage rates can add hundreds of dollars a month in costs for borrowers, limiting homebuyers’ purchasing power. As rates rise, that can lead prospective home shoppers to delay buying a home, one reason U.S. home sales have been sluggish this year. Borrowing costs on 15-year fixed-rate mortgages, often sought by borrowers refinancing a home loan, also rose this week. That average rate increased to 5.96% from 5.93% last week. A year ago, it was at 5.87%, Freddie Mac said.

Congress’ historic effort to boost the nation’s housing supply passed both chambers with overwhelming bipartisan support and became law earlier this month. It also left a mountain of paperwork for Washington’s significantly shrunken federal agencies, which are now tasked with turning dozens of new policies into reality. Some of the lawmakers who pushed for the law worry that the Department of Housing and Urban Development — which has shed more than 30% of its core policy workforce in just three years following budget cuts — is too understaffed to quickly issue new rules and implement its provisions, aimed at making building and buying homes cheaper and easier. HUD Secretary Scott Turner is “up to the task, but you’ve got to have the underlying organization to get it done,” Sen. Thom Tillis (R-N.C.) told reporters. …HUD’s budget estimates show the offices that run the department’s programs shed more than 1,800 staff since 2023.

Vinyl siding was the most used principle exterior wall material for homes started construction in 2025. This material held just over a quarter share of homes, surpassing stucco for the second time since 2018. The declining share for stucco reflected the slowdown for home building in parts of the Sun Belt. For homes started in 2025, 27.7% had vinyl siding as the principal exterior wall material. Vinyl siding was followed closely by stucco at 24.1%, and by fiber cement siding (such as Hardiplank or Hardiboard) at 22.6%. Each of these materials held about a quarter share of the market, with another sliver held by brick or brick veneer at 16.8%. Far smaller shares of single-family homes started last year had wood or wood products (5.9%) as the principal exterior wall material, while all other materials had a less than 2% share. The strongest trend has been the growing popularity in fiber cement siding.

The Conference Board Leading Economic Index® (LEI) for the US declined by 0.2% in June 2026 to 99.1 (2016=100), following a 0.1% increase in May. However, the LEI is down by only 0.3% over the first half of 2026, a much smaller rate of decline than its 1.1% contraction over the second half of 2025. …Justyna Zabinska-La Monica at The Conference Board said, “While some components of the LEI were little changed, the largest positive contribution from the yield spread, followed by marginal positive input from the remaining financial components, were not enough to offset weak consumer expectations and a drop in building permits across most of its categories. Despite the recent decline, the LEI’s six- and twelve-month growth rates, while negative, were stable. Consumer spending is weakening, but strong business investment related to AI is expected to support economic activity while inflation continues to improve.

Strong multifamily growth pushed overall housing starts higher in June, while single-family production remained sluggish as elevated mortgage rates, rising construction costs and persistent labor shortages continued to weigh on the market. Overall housing starts increased 19.0% in June to a seasonally adjusted annual rate of 1.43 million units, according to a report from the U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau. This pace reflects the number of housing units builders would begin over the next 12 months if June’s activity were sustained. Within the total, single-family starts decreased 0.2% to an 895,000 seasonally adjusted annual rate and were down 3.2% compared to June 2025. On a year-to-date basis, single-family starts are down 5.3%. Given recent volatility, the three-month moving average provides a clearer signal, falling to 902,000 units.

US single-family homebuilding and permits for future construction fell in June, weighed down by higher mortgage rates and inventory of unsold ‌new homes on the market. Single-family housing starts, which account for the bulk of ‌homebuilding, slipped 0.2% to a seasonally adjusted annual rate of 895,000 units. Single-family homebuilding dropped 3.2% year-on-year in June. Permits for future construction of single-family homes dropped 2.4% last month to a rate of 871,000 units. They fell 0.2% year-on-year in June. The rate on the popular 30-year fixed-mortgage has increased by nearly 60 basis points since the ‌US and Israel attacked Iran ⁠at the end of February. …Building permits for ​multi-family housing projects dropped 4.9% ‌to a rate of 445,000 units last month. Overall building permits fell 3.0% ​to a rate of 1.367 million units. They declined 2.3% year-on-year in ​June.

Economic uncertainty and persistent affordability challenges driven by rising material prices, high land costs, and elevated mortgage rates continue to weigh on builder sentiment. Builder confidence in the market for newly built single-family homes fell two points to 34 in July, down from an upwardly revised reading of 36 in June, according to the NAHB/Wells Fargo Housing Market Index (HMI). Sentiment has remained below 40 for 15 consecutive months, the longest such stretch since 2012. With the HMI below 40 for 15 straight months, affordability remains the home building industry’s primary challenge, as elevated mortgage rates, costly land, rising material prices, and persistent skilled labor shortages continue to affect the market. Looking ahead, the newly enacted 21st Century ROAD to Housing Act is a positive step that will help expand housing supply and lower overall housing costs, although more policy change is needed at the state and local level.

Residential building material prices, excluding energy, rose 0.5% in June and were up 4.6% from a year ago. Lower energy prices were apparent in June, as energy input prices fell 10.3% over the month. Meanwhile, prices for services rose 5.2% over the year, and were up 1.0% from the previous month. The Producer Price Index for final demand declined 0.3% in June, after rising 0.6% in May. Compared to a year ago, final demand prices were up 5.5%. The index for final demand services rose 0.3% in June, while the index for final demand goods fell 1.4% over the month. The price index for inputs to new residential construction fell 0.1% in June and was up 6.2% from last year. The price of goods used in new residential construction (including energy) was down 0.8% over the month and up 6.9% from last year, while the price of services was up 1.0% over the month and up 5.2% from last year. 

Inflation slowed to 3.5% in June from a three-year high last month, driven by a mid-June ceasefire agreement that stabilized oil markets and lowered energy prices. The decline in energy prices offset increases in shelter and food, resulting in a monthly decrease in inflation for the first time since April 2020. However, the relief could be short-lived as the ceasefire collapsed in early July has pushed oil prices up by 12% and renewed inflation concerns. On a non-seasonally adjusted basis, the Consumer Price Index (CPI) rose by 3.5% in June from a year ago, following a 4.2% increase last month, according to the BLS latest report. …The housing shelter index, which makes up a large portion of “core” CPI, rose 3.3% over the year, following a 3.4% increase last month. Meanwhile, the component index for food rose by 3.0%, and the energy component index increased by 15.7%.

State-level permitting activity continued to reflect a divided housing market through the first five months of 2026. Elevated mortgage rates and ongoing affordability challenges continued to weigh on single-family construction across much of the country, while multifamily permitting remained comparatively stronger, supported by gains in several regions despite continued weakness in parts of the South. Over the first five months of the year, the number of single-family permits issued nationwide reached 380,130. Compared with the same period in 2025, this represents a 6.1 percent decline compared with the May 2025 total of 404,977. In contrast, multifamily permitting activity remained stronger, with 208,192 permits issued nationwide, marking a 6.5 percent increase from the same period last year.

On July 9, 2026, Mercer International received a notice from Nasdaq staff that the company’s common stock had failed to meet the exchange’s minimum bid price requirement of $1.00 per share for 30 consecutive business days, triggering a formal non-compliance status under Nasdaq rules. The notification does not immediately affect the listing or trading of Mercer’s securities, but it places the company under an initial 180-day compliance period in which it must restore its share price to at least $1.00 for ten consecutive business days to avoid potential future delisting pressure. Mercer is working to regain compliance, though it acknowledges there is no assurance it can meet the requirement within the timeframe. The development… could influence investor sentiment and the company’s capital markets flexibility depending on its ability to achieve and sustain the mandated bid price threshold. [to access the full story a Globe and Mail subscription is required]

High mortgage rates aren’t the only reason homeownership remains out of reach for many Americans. Behind the scenes, homebuilders are grappling with an overlooked challenge — a shortage of skilled workers — that is slowing construction and making it harder to close the nation’s housing gap. Builders say the labor shortage is creating a ripple effect throughout the housing market, delaying projects, raising construction costs and limiting the number of new homes coming online at a time when demand continues to outpace supply. “Labor is one of the largest and most expensive inputs when it comes to home production and land development,” Jim Tobin, president and CEO of the NAHB. He said that every month, the construction industry is short by approximately 250,000 workers. …A recent NAHB report estimates builders will need roughly 723,000 new workers annually to keep pace with demand and help close the nation’s 1.5 million-home housing gap.

In the second quarter of 2026, the NAHB Remodeling Market Index (RMI) posted a reading of 61, down one point compared to the previous quarter. The RMI has remained in the low 60s consistently over the past year. Even with this slight decline from the previous quarter, remodeler sentiment remains the standout sector within the housing industry, outperforming both its single-family and multifamily counterparts. …However, ongoing economic uncertainty and current cost pressures due to inflation are causing project delays, especially for larger ones. In the latest RMI survey, 74% of remodelers reported that their suppliers have increased prices of materials since March due to higher fuel costs, with the average increase in materials prices over that span being 6.7%.

The U.S. goods trade deficit is widening, the Commerce Department said Friday, suggesting stockpiling ahead of higher tariffs and a continued reliance on imports for the domestic data center rollout, analysts say. The goods trade deficit for May jumped more than $20 billion to $105.8 billion, up from $83 billion in April, according to Census Bureau data published Friday. The latest numbers are sure to rankle the Trump administration, which has made reducing the deficit a pillar of its trade policy goals. Scott Lincicome at the Cato Institute said “You’re in the window after the IEEPA tariffs and before the Section 301 tariffs,” Lincicome said, referring to the sweeping emergency tariffs imposed under the International Emergency Economic Powers Act, which were overturned by the Supreme Court in February. “So, there’s a nice opportunity for importers to bring in as much as possible before they might face higher tariffs.”

As the Iran conflict pushed up energy prices, the Personal Consumption Expenditures (PCE) Price Index—the Federal Reserve’s preferred inflation gauge—accelerated to a three-year high in May. While oil and gasoline prices have declined in recent weeks as planned Strait of Hormuz reopening reduced the risk of further energy price spikes, inflation may stay elevated in the coming months due to underlying price pressures. This could challenge the Fed’s recommitment to its price stability mandate. The headline PCE price index increased 4.1% in May from a year ago, following a 3.8% increase in April, according to the Commerce Department’s Bureau of Economic Analysis. That was the highest level since April 2023. The “core” PCE price index, which excludes food and energy, rose 3.4% over the past twelve months, the highest since May 2023.

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the first quarter of 2026 (January, February, and March), according to the third estimate released today by the U.S. Bureau of Economic Analysis. In the fourth quarter of 2025, real GDP increased 0.5 percent. The increase in Q1 GDP primarily reflected increases in investment, exports, government spending, and consumer spending. Imports, which are a subtraction in the calculation of GDP, increased. Real GDP was revised up 0.5 percentage point from the second estimate, primarily reflecting a downward revision to imports, which are a subtraction in the calculation of GDP, that was partly offset by a downward revision to consumer spending.

A closely watched inflation report is set to reveal how much price growth picked up in May — and whether many American consumers remain mired in an affordability crunch. Wall Street forecasters expected the pace of personal consumption expenditures (PCE) to have quickened compared with April data amid higher oil prices and stronger consumer spending. The monthly PCE report is the Federal Reserve’s preferred inflation gauge. New Fed Chairman Kevin Warsh has said the central bank is committed to bringing inflation back to its 2% target — a level it has failed to reach for the past five years. Wall Street now anticipates the Fed will raise its key interest rate at least once by year’s end in a bid to counteract the stronger price growth.

US sawmill production fell in the first quarter, the second consecutive quarter of lower output. Sawmill output has remained largely flat since 2023, after increasing in the post-pandemic period. The utilization rate for sawmills and wood preservation industries was 71.8% on a four-quarter moving average, up from 71.2% in the fourth quarter of 2025. The sawmill utilization rate, a measure of actual production relative to potential full production moved upward over 2025 as capacity for sawmills fell. Sawmill production, based on a four-quarter moving average, was 0.4% lower in the first quarter of 2026 compared to the fourth quarter but remained higher than a year ago by 1.7%. US sawmills’ full production capacity, an estimation of what could have been produced if running at full production capability, was down 6.0% from a year ago. Lumber prices rose slightly in the first quarter. …Employment in sawmill and wood preservation industries continued to fall, dropping to roughly 82,800 workers in the first quarter. 

Elevated mortgage rates, rising inflation and economic uncertainty kept many buyers out of the market in May as consumers and builders continue to deal with challenging affordability conditions. While monthly sales activity softened, builders continue to operate in a market characterized by cautious buyers and persistent financing constraints. Sales of newly built single-family homes fell 7.3% month-over-month in May to a seasonally adjusted annual rate of 580,000 units, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This represented a 6.8% decline compared to a year earlier. New single-family home inventory totaled 496,000 units in May, up 2.3% from the prior month but down 1.4% from a year earlier. At the current sales pace, the months’ supply of new homes stood at an elevated 10.3 months, above the 9.7 months recorded one year ago.

The Federal Reserve’s primary price gauge rose at its highest level since 2023, reinforcing the central bank’s recent tough talk on inflation. Excluding food and energy, the personal consumption expenditures price index showed a 3.4% annual rate after rising 0.3% for the month. The annual core reading was the highest since October 2023. For the all-items reading, the PCE index showed inflation running at a seasonally adjusted 4.1% annual rate, the highest since April 2023, according to a Commerce Department report Thursday. …Traders continued to expect the Fed to approve a rate hike in September, though they lowered odds slightly. Energy again provided the largest source of price gains, with related goods and services prices up 4% for the month. Housing cost rose 0.3%, while financial services and insurance jumped 1.2%. …Even with the elevated inflation levels, consumer spending for the month came in stronger than expected. 

WASHINGTON —Associated Builders and Contractors reported that its Construction Backlog Indicator rose to 9.1 months in May, according to an ABC member survey conducted May 20 to June 3. The reading is up 0.3 months from April and 0.7 months from May 2025. Backlog for the month increased in every region except for the South. Despite the monthly movement, the South remains the region with the longest backlog and the largest year-over-year increase in backlog. …ABC’s Construction Confidence Index readings for sales, profit margins and staffing levels fell in May. The readings for all three components remain above the threshold of 50, indicating expectations for growth over the next six months. 

We appear to be seeing the impacts of the preliminary antidumping and countervailing duties on imports of hardwood plywood from China, Indonesia, and Vietnam. After spikes in recent years, there are significant declines in imports from these countries. However, we may also be starting to see the signs of transshipment through other Asian countries, including Malaysia, Cambodia, and Thailand. …The most recent data shows that U.S. imports of hardwood and decorative plywood are down by more than 36% in volume and 23% in value for the first four months of this year. Imports from Indonesia, Vietnam, and China declined by nearly 70%, 61%, and 66%, respectively. During the same period, imports from Malaysia and Cambodia surged by 175% and 650%.

With a new Fed Chair and plans for evolving operating strategies, the Federal Reserve maintained its target policy rate at the conclusion of the June Federal Open Market Committee (FOMC) meeting. For the fourth consecutive meeting, the FOMC maintained the short-term federal funds rate at a top rate of 3.75%. …Overall, the FOMC statement was short, indicating a new communication strategy. There were no dissenting votes. The two-year Treasury rate increased by more than 10 basis points after the FOMC announcement. It is worth noting that while the statement was short, the press conference revealed a number of new plans under Fed Chair Warsh. While holding rates constant, the Fed pivoted to a more hawkish tone in its policy statement. Among the items dropped from the current FOMC statement was its prior easing bias for monetary policy. …Looking forward, the Fed’s outlook for the economy and monetary policy reflects recent supply shocks.

A top US Customs and Border Protection (CBP) official told Court of International Trade (CIT) Judge Richard Eaton on 9 June that the agency is still creating a process for refunding tariffs that involve more complex entry types and that have been finally liquidated (i.e., are more than 90 days post-liquidation) in the Consolidated Administration and Processing of Entries portal. “We can’t do it all at once,” CBP Executive Assistant Commissioner Susan Thomas testified. ….The US Trade Representative (USTR) is proposing additional tariffs, at rates of 10% and 12.5%, on 60 economies after determining they failed to impose and/or enforce a prohibition on goods produced with forced labor, giving them advantages over US competition. USTR is seeking feedback on the proposals and called for written comments by 6 July, with hearings on the proposed actions scheduled for a day later. 

Construction activity on new single-family homes retreated in May alongside permits and completions in the face of economic uncertainty, high borrowing costs, and material rates, the U.S. Census Bureau reported Tuesday. Single-family housing starts last month were a seasonally adjusted annual rate of 882,000, down 1.9% from April. Total housing starts in May also experienced a significant pullback, plunging 15.4% month over month and 8.7% year over year to a seasonally adjusted annual rate of 1.17 million units. Municipalities across the U.S. issued 1.413 million permits for the construction of private housing in May, 0.7% below April’s rate of 1.42 million and 0.2% below May 2025’s 1.416 million. Single-family completions last month dipped 1.6% below April’s revised rate of 886,000 units, while total housing completions dropped 8.1% from April.

Related coverage by:

• Jessica Coacci in the WSJ: US Housing Starts Fell Sharply in May
• Andrew Ricci in Reuters: US single-family starts drop to 8-month low

Housing starts fell sharply in May, driven by a steep drop in multifamily construction, while single-family building also slipped amid high interest rates, rising construction costs and persistent labor shortages. Overall housing starts decreased 15.4% in May to a seasonally adjusted annual rate of 1.18 million units. …“The decline in housing starts aligns with NAHB’s latest builder survey, which showed builder sentiment weakening further in June,” said Bill Owens, chairman of the NAHB. “Elevated mortgage rates, affordability challenges and cautious buyers continue to weigh on demand for new homes.” …Overall permits decreased 0.7% to a 1.41-million-unit annualized rate in May. Single-family permits increased 0.6% to an 886,000-unit rate and are down 1.8% compared to May 2025. Multifamily permits decreased 2.8% to an annualized 527,000 pace and are up 2.5% compared to May 2025. The number of single-family homes under construction is at 587,000 units—5.9% lower than a year ago.