Bottom Line: Growth forecasts edged up this week, moving closer to our expectations as residential investment appears likely to swing from a drag to a positive, possibly as early as this quarter. Housing affordability remains a major issue. But its biggest impact is being felt in existing home sales. Strong underlying demand is leading new home sales higher relative to existing home sales, where sellers are the ones with sticker shock given how low their existing mortgage rates are.
Our Views: - The base case remains for the US consumer to remain just strong enough to keep US growth positive through the 2nd Half, with growing clarity that housing has moved from a headwind to a tailwind.
- CPI will remain stubborn through the 3rd Quarter, but the risks are to the downside of our model forecasts, possibly even negative readings in 2024.
- Long lags between reported and actual inflation data, especially related to rents, mean it will be late this year before we see a sharp deceleration in inflation.
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