US data under the spotlight: tracking GDP model unchanged - Nomura

Analysts at Nomura offered the latest data reviewed from the US session.

Key Quotes:

Housing starts: Housing starts fell 2.6% m-o-m to an annualized pace of 1172k in April, weaker than expectations (Nomura and Consensus: +3.7% to 1260k). Building permits declined 2.5% to 1229k annualized pace in April (Nomura: -0.9% to 1255k, Consensus: +0.2% to 1270k) from 1260k in March. This report includes revisions to housing starts going back to January 2015. Q1 monthly profiles were revised downwards. Much of the weakness was concentrated on multifamily housing starts, which fell 9.2%. Single-family house construction was not as robust as expected, rising only 0.4%. Regionally, starts in Northeast and South declined, but those in the Midwest and West increased. Many indicators on the housing market such as employment gains in the sector and home builders’ sentiment remained positive in April. However, it is possible that adverse conditions within the industry such as tighter credit standards for commercial real estate and shortage of skilled labor and developable lots may have added some downward pressure. Further, there could have been additional negative payback as weather returned to normal after unusually warm weather in January and February. 

Industrial production: Industrial production jumped 1.0% m-o-m in April (Nomura: 1.1%, Consensus: 0.4%). The strong increase in top-line industrial production was led by a 0.7% jump in core manufacturing output (excluding the motor vehicle and parts subgroup) as well as a healthy 1.2% increase in the mining sector output. A strong pickup in core factory output was heralded by a sharp increase in aggregate hours in April reported by the BLS. Yet, smoothing through volatility, the three month moving average of core factory output increased steadily by 0.2% m-o-m and appears consistent with our view that recovery in this sector remains steady. The autos and parts output increased 5.0% m-o-m. Although industry data on a non-seasonally adjusted basis pointed to weakness, seasonal factors were favorable for this indicator. Moreover, a 1.2% increase in the mining sector output after a 0.4% decrease in the prior month was likely driven by a sharp increase in oil and gas wells drilling (9.0%). The robust gain in drilling output appears consistent with active oil and gas rig counts in recent months. Utilities output increased modestly by 0.7% as a decent increase in electric utility was offset by a sharp fall in utility natural gas output. 

GDP tracking update: Although utility output, a proxy of household energy consumption, came in a little weaker than we had expected, robust vehicle assemblies in April with downward revisions to March implies more inventory buildup of auto products in Q2. On net, our Q2 GDP tracking estimate was unchanged at 3.6%. Q1 GDP tracking stayed at 0.7%."