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Housing Starts Depict Slowdown as Fed Meeting Begins

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Ahead of today’s opening bell, August Housing Starts fell to their lowest level since the pandemic: 1.283 million seasonally adjusted, annualized units is -11.3% below the downwardly revised 1.447 million from the previous month and the 1.43 million analysts were expecting. It’s the lowest print since June 2020, and helps illustrate how 7%+ mortgage rates have thrown a wet blanket over the housing market as a whole.

With few homeowners currently putting their places up for sale, new starts were seen as key to keep this industry up. But here we are taking out January lows, and a very far cry from multi-year highs of nearly 1.8 million housing starts seen in early 2022. This is going to keep the housing market — the first and most visually impacted by higher interest rates the Fed began March of last year — under strain until more inventory somehow is brought about.

Building Permits, also for August — a proxy for future starts — were up much higher than projected: 1.543 million, +6.9% above the slight downward adjustment to 1.43 million in July, and a strong outperformance over the 1.45 million expected. September of last year remains the cycle high of 1.59 million, while the lows in January of 1.354 million look like an outlier. However, should starts fail to materialize, this will necessarily slow the permits business, as well.

Speaking of the Fed, the first day of the two-day Federal Open Market Committee (FOMC) meeting convenes today, with a new monetary policy decision on interest rates comes out tomorrow at 2pm ET. More than 95% of analysts expect there will be no rate hike at this meeting — the Fed’s first since July — as odds increase for a 25 basis-point (bps) increase at the next FOMC meeting in November. But should economic reads like today’s Housing Starts/Building Permits continue and spread to other segments of the economy, this would decrease chances of another rate hike then, as well.

Thus, we’re still in the “bad news is good news” transition state of a post-Covid U.S. economy; we’re already at 20+-year highs on the Fed funds rate, 5.25-5.50%, and can expect to at very least remain at these elevated levels until more aspects of the economy cool off. Only worse economic reports will send the Fed to trimming interest rate levels, and to this point — despite the near-constant criticism the Fed has dealt with for the past two years-plus — they’ve kept their ear to the ground and done a very good job getting the economic plane closer to landing without crashing into recession.

AutoZone (AZO - Free Report) is out with fiscal Q4 earnings this morning, beating earnings estimates by +4.38% to $46.46 per share. This is also a nice year-over-year gain from $40.51 per share in the year-ago quarter. Revenues of $5.69 billion in the quarter beat the Zacks consensus by +2%. Shares had only been up +2.3% year to date, yet AZO pre-market trading is giving that up ahead of the open, on lower domestic growth reported. AutoZone took a Zacks Rank #4 (Sell) into today’s earnings report. For more on AZO’s earnings, click here.

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