LIVE MARKETS-Overcast with chance of rain: UMich, housing starts/permits, import prices

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OVERCAST WITH CHANCE OF RAIN: UMICH, HOUSING STARTS/PERMITS, IMPORT PRICES

A data triptych released on Friday showed the clouds of economic uncertainty continue to gather on the horizon even as deals are being struck to curb President Trump's chaotic, market-rattling policies.

The mood of the American consumer, who shoulders the burden of about 70% of the U.S. economy, has unexpectedly continued to darken this month.

The University of Michigan's (UMich) preliminary take on March Consumer Sentiment USUMSP=ECI dropped 1.4 points to 50.8, defying the 1.2-point increase analysts expected.

It was the most pessimistic reading since June 2022.

Survey participants' assessment of current conditions fell by 3.7%, while near-term expectations plummeted by 1.7%.

Noting that sentiment is now down almost 30% since January, Joanne Hsu, director of UMich's Surveys of Consumers, says "tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April; uncertainty over trade policy continues to dominate consumers’ thinking about the economy."

The survey was run between April 22 and May 13, ending two days after the announcement of a pause on some tariffs on imports from China.

Near- and long-term inflation expectations shot up considerably, with respondents seeing annual inflation at a gasp-inducing 7.3% a year from now, up from 6.5% in April and a whopping 4.5 percentage points hotter than the most recent core CPI reading.

Five-year inflation expectations rose 0.2 ppts to 4.6%.

While consumer surveys aren't reliable inflation predictors, they are closely watched by Powell & Co, because they can suggest an "inflation mentality," which can become a self-fulfilling prophecy.

Groundbreaking on new American homes USHST=ECI increased by 1.6% in April to 1.361 million units at a seasonally adjusted, annualized rate (SAAR), according to the Commerce Department.

That's just 0.3% shy of the 1.365 million units SAAR analysts were expecting and marks only a partial rebound from March's 10.1% plunge.

Looking under the hood, while single-family projects - which account for the lion's share of the total - dropped 2.1% to an eight-month low, multiple-unit starts more than made up for it by jumping 10.7%.

On the other hand, building permits USBPE=ECI - considered one of the housing market's more forward-looking indicators - slid 4.7% to 1.412 million units SAAR, 2.6% south of consensus.

Single-family and multiple unit permits dipped by 5.1% and 3.7%, respectively.

Going forward, Nancy Vanden Houten, lead U.S. economist at Oxford Economics, expects starts and permits to be "weighed down by negative homebuilder sentiment, elevated mortgage rates and higher building costs due to tariffs."

"The risk to our forecast is tilted to the upside if the recent truce on tariffs with China becomes permanent or if tariffs are scaled back further," Houten adds.

The cost of goods imported to the United States USIMP=ECI (excluding tariffs) defied expectations by inching 0.1% higher in April, per Labor Department Data.

Analysts expected a repeat of March's -0.4% print.

Digging deeper, a 2.0% drop in imported gasoline prices and a 0.5% dip in industrial supplies held gains in check, while a 0.6% increase in capital goods provided some upside muscle. Excluding petroleum, import prices rose 0.4%.

Noting that "imported semiconductor prices drove the upside surprise in import prices ex petrol," Jeffrey Roach, chief economist at LPL Financial adds the April data is "not fully impacted by the evolving trade policy so investors will have to wait until the summertime for any new trends to emerge."

Year-over-year, import prices are up a trifling 0.1%, a fairly abrupt deceleration from the previous month's 0.8% annual growth rate.

While import price growth is well south of Powell & Co's 2% annual inflation target, import/export prices differ from other major inflation indicators with things like currency exchange rates and foreign demand thrown into the mix.

Here's a chart that shows annual import/export price growth against the dollar index, which tracks the greenback against a basket of world currencies.

(Stephen Culp)

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