New home construction increases in May.  The Census Bureau reported that new residential construction on single-family homes increased 7.5 percent in May to a rate of 401,000 homes per year.  Though May’s activity represented the largest jump in housing starts since January 2006, month-to-month changes are generally volatile.  Although single-family housing starts have increased for 3 consecutive months from the historical low reached in January and February, the current rate is well below the average rate of one million housing starts per year seen from 1959 to 2000.  While some experts expressed a belief that this may be an early indicator that new home construction has bottomed out, this optimism is tempered by sustained home price declines. (See Chart) The Case-Shiller 20-City home price index shows continued deterioration in prices through March, recording an 18.7 percent year-over-year drop.  A robust recovery in the housing market could be stymied by this downward price pressure, pushing more mortgages underwater, inhibiting home buyer demand, and further straining bank balance sheets.

Initial jobless claims decline.  The four-week moving average of initial jobless claims declined for the week ending June 13 to 615,750 claims.  This is the second week in a row that the average has declined.  It had initially peaked in the first week of April (658,750 claims), but has not declined steadily since that date.  In each of the last five recessions, the economic contraction reached a trough and started expanding in an eight-week window after the four-week moving average of initial jobless claims hit its peak.

Factories operating at record-low capacity.  Industrial production declined for a seventh straight month, falling 1.1 percent in May according to the Federal Reserve.  Capacity utilization fell 0.7 percentage points to a record-low 68.3 percent, down from 80.6 percent at the beginning of the recession. The report showed that production in the manufacturing sector slowed another 1 percent in May, with “broad-based declines” across all industries.  Additionally, the other two major industry groups, mining and utilities, slowed during the month by 2.2 percent and 1.4 percent, respectively.  Production of durable consumer goods, like automotive products, electronics, and furniture, has been hit particularly hard with the drop in consumer spending; it’s now 29.0 percent below the value in December 2007.  In contrast, production of nondurable goods – essentials like food and clothing – is down just 2.8 percent over the same time frame.

Consumer prices have dropped 1 percent in the last year.  The Consumer Price Index for All Urban Consumers (CPI-U) posted a 0.10 percent increase in May after declining for two consecutive months.  Large changes in the CPI for energy goods, composed in large part by gasoline pump prices, have greatly affected the trajectory for the headline CPI.  Even though gasoline prices have increased of late, last month’s average price was still about $1.50 below the $3.77 witnessed in May 2008.  The one percent decline in the headline CPI is due mostly to that gasoline price disparity.  Factoring out more volatile energy and food prices, the “core-CPI” registered a slightly larger 0.14 percent increase in May, but was actually 1.84 percent above the previous May’s index.  The data over the past year demonstrate a trend of moderating consumer price inflation, which is consistent with the current sluggish retail situation.