Tag: housing permits

Housing Starts Rebounded in July to Their Second-Highest Pace since the Recession

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts increased 15.7 percent in July, offsetting significant declines in both May and June. Starts increased from an annualized 945,000 in June to 1,093,000 in July. This was the fastest pace since the 1,105,000 rate observed in November, making it the second-highest pace since November 2007. This is a sign that the lull that we have seen in the housing market so far this year has begun to dissipate, which is definitely a positive sign. New residential construction starts have increased 21.7 percent year-over-year.

The bulk of the increase in July stemmed from the highly-volatile multi-family segment, up from 339,000 to 437,000. This was the fastest pace in multi-family construction activity since January 2006. At the same time, single-family starts also improved, up from 606,000 to 656,000, the highest rate since December. Single-family starts have increased 10.1 percent over the past 12 months.

Meanwhile, housing permits mirrored the progress with starts data, rising 8.1 percent in July after two consecutive decreases in May and June. Housing permits grew from 973,000 at the annual rate in June to 1,052,000 in July, representing an increase of 7.7 percent year-over-year. Single-family (up from 634,000 to 640,000) and multi-family (339,000 to 412,000) permitting were both higher, with the latter up a whopping 21.5 percent for the month.

Overall, July’s housing numbers were encouraging, particularly given the softness seen earlier in the year. Housing starts had averaged 961,000 from January to June, bottoming out at 897,000 in January. Financial difficulties in obtaining credit (particularly for first-time home buyers) and economic uncertainties were obstacles for some. Moving forward, we would expect August’s housing data to remain above the one-million mark, with starts solidly at 1.1 million by year’s end, representing slow-but-steady progress in the residential market.

This would be consistent with rising confidence in the National Association of Home Builders and Wells Fargo report released yesterday. The Housing Market Index increased for the third straight month, up from 53 in July to 55 in August. It was the second month with the index above 50, an indication that more home builders were positive than negative in their outlook. More importantly, it was the highest level since January, with builder confidence lagging from February to June with an average of 46.4 over that five-month span. The latest rebound is perhaps a sign that the sector has begun to recover somewhat.

Indeed, the index of expected single-family sales over the next 6 months rose from 63 in July to 65 in August, its fastest pace in 12 months. With that said, some of the underlying data indicate that persistent challenges remain. For instance, the index of buyer traffic, while up from 39 to 42, remains below the all-important threshold of 50. Moreover, the regional data were mixed, with home builder confidence up in the Midwest and Northeast but marginally lower in the South and West.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Housing Starts Were Unexpectedly Lower in June

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts unexpectedly declined for the second straight month. Starts dropped from an annualized 985,000 in May to 893,000 in June. This was down from the faster pace of 1,063,000 in April; although, that figure appears to be a bit of an outlier. Excluding April, the average rate of new housing starts through the first half of 2014 was 930,600. Even with that in mind, June’s pace was disappointing and a sign that the housing market remains weaker than we would prefer.

Indeed, new housing starts were off for both single-family (down from 632,000 to 575,000) and multi-family (down from 353,000 to 318,000) units.The pace for single-family starts was the lowest level since November 2012, highlighting some persistent softness in the residential construction market so far this year. While the longer-term trend remains positive, single-family housing starts have fallen 4.3 percent over the past 12 months.

Meanwhile, housing permits data also fell, down from 1,005,000 units at the annual rate in May to 963,000 in June. Unlike the starts figures, however, there were some encouraging signs. Single-family permitting rose for the second straight month, up from 597,000 in April to 615,000 in May to 631,000 in June. This could suggest stronger growth in the housing market in the coming months for single-family homes. At the same time, multi-family units have been weaker, pulling the headline figure lower. Multi-family permitting dropped from 462,000 to 390,000 to 332,000 over the same three months, with the most recent pace being the slowest in 10 months.

Overall, June’s housing numbers were quite discouraging. There was optimism a couple months ago that residential activity was beginning to pick up after weakness since last summer, and the consensus expectation had been for housing starts to exceed one million again in June. Yet, the housing market continues to underperform through the first six months of this year. Financial difficulties in obtaining credit (particularly for first-time home buyers) and economic uncertainties remain obstacles for some. Still, I continue to predict housing starts of 1.1 million by year’s end, and we can put some hope in the single-family housing permits figures and the possibility of improved activity moving forward.

For its part, the Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo, released yesterday, suggested that builders were more upbeat of late. The HMI increased from 49 in June to 53 in July, the first time the index has surpassed the all-important threshold of 50 since January. When the HMI exceeds 50, it indicates that more home builders are positive than negative in their views of the market. More importantly, the index of single-family sales increased from 53 to 57, with expected sales over the next six months rising from 58 to 64.

As such, NAHB Chief Economist David Crowe was more positive in his assessments of the housing market, with recently better jobs numbers boosting sentiment. He said, “As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home.” Hopefully, this improvement in home builder confidence helps to foreshadow better sales in the months ahead.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – June 23, 2014

Here are the files for this week’s Monday Economic Report:

The Federal Reserve Bank downgraded its estimates of growth for 2014, with real GDP growth of 2.1 percent to 2.3 percent. This was down from its March projection of 2.8 percent to 3.0 percent, largely due to weaknesses in the first quarter. Nonetheless, the Federal Reserve still projects a pickup in activity during the second half of the year that will continue into 2015, with an unchanged outlook of 3.0 percent to 3.2 percent growth next year. The unemployment rate is anticipated to fall to 6.0 percent by year’s end and as low as 5.4 percent in 2015.

With that in mind, the Federal Open Market Committee (FOMC) observed that “growth in economic activity has rebounded in recent months,” even as it cited continued slack in the labor market. The FOMC continued to taper its asset purchases, down from $45 billion per month to $35 billion, and it mostly reiterated its intent to keep a highly accommodative monetary policy stance for the foreseeable future. Short-term interest rates are expected to start rising at some point next year. Yet, there is renewed chatter among “inflation hawks” about increased pricing pressures of late. Core consumer prices, which exclude food and energy costs, rose 1.95 percent over the past 12 months, its fastest year-over-year pace in 19 months. While inflation still appears to be in check, the recent run-up in costs has fueled a debate about whether short-term rates might need to increase sooner than conventional wisdom might suggest.

For manufacturers, activity continues to recover from winter-related softness at the beginning of the year. Manufacturing production has risen 2.8 percent since January’s decline, with 3.6 percent growth over the past 12 months. Capacity utilization for the sector increased to 77.0 percent in May, its highest level since March 2008. Similarly, manufacturers in the New York and Philadelphia Federal Reserve districts reported strong growth in their respective June surveys. More importantly, respondents were mostly optimistic about future activity. More than half of those taking each survey said they anticipate increased new orders over the next six months. The Philadelphia Federal Reserve report also noted that 73.9 percent of its manufacturers predicted increased production in the second half of this year, with nearly 48 percent forecasting output growth of more than 4 percent.

Meanwhile, the housing market has provided mixed progress so far this year, even as we remain cautiously optimistic about future months. New housing starts decreased from an annualized 1,071,000 units in May to 1,001,000 in June. Despite the decline, it was the second straight month that starts have exceeded 1 million units, and the underlying trend remains positive. April’s figure was an outlier, with the year-to-date average being 969,000. As such, we continue to make slow-but-steady progress. At the same time, housing permits also declined, but single-family permitting increased from 597,000 units at the annual rate to 619,000, the fastest pace since November. This could be a sign that residential construction will accelerate in the months ahead. I still believe we will reach 1.1 million housing starts by year’s end. Moreover, homebuilder confidence was also higher for the month.

This week, we will get additional data on the health of the housing and manufacturing sectors. The Kansas City and Richmond Federal Reserve Banks will unveil their latest surveys, and Markit will release Flash Purchasing Managers’ Index (PMI) data for China, Japan, the Eurozone and the United States. We hope they will continue to reflect rebounding activity in the United States, and analysts will be closely following the June Chinese PMI data to see if the sector expands for the first time in 2014. The other key number to watch will be the second revision of real GDP for the first quarter. The consensus estimate is for the decline in output to exceed 1.5 percent, worse than the 1.0 percent decrease in the first revision. Other highlights include new data on consumer confidence, durable goods orders and shipments, existing and new home sales and personal income and spending.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Housing Starts and Permits Decline in May, with Both Hovering Around 1 Million Annualized Units

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts and permits both declined in May. New housing starts decreased from an annualized 1,071,000 units in April to 1,001,000 in May, with the annual pace staying above one million for the second straight month. The average pace for new housing starts so far in the first five months of 2014 was 969,000, suggesting that we continue to make slow-but-steady progress on the residential front. It also appears that April’s jump was a bit of an outlier. Nonetheless, housing starts have increased 9.4 percent since May 2013.

Much of the volatility over the past few months has come from the multi-family housing segment, which has hovered between an annualized 314,000 in January to April’s 407,000. In May, multi-family housing starts declined to 376,000 units. Perhaps more disappointingly, single-family starts were also lower for the month, down from 664,000 to 625,000.This was the lowest level since February and highlights some persistent softness in the residential construction market, even as the longer-term trend continues to edge slightly higher. For instance, single-family housing starts remain 4.7 percent higher on a year-over-year basis even as the pace remains below the more rapid rates seen at the end of 2013.

Meanwhile, housing permits data also fell, down from 1,059,000 units at the annual rate to 991,000. Yet, the permitting data – which suggest future activity for residential construction – were perhaps more encouraging than the headline figure might suggest, particularly for single-family homes. Single-family housing permits increased from 597,000 in April to 619,000 in May, their fastest pace since November and hopefully a sign of a possible pickup. At the same time, multi-family permitting declined from 462,000 to 372,000, pushing the overall numbers lower.

Overall, May’s housing numbers provided mixed news. New residential starts and permits were both lower in May, and single-family starts off 5.9 percent for the month. Still, single-family permitting moved higher, which should indicate more construction down the line. Moreover, the longer-term trend remains positive, even as growth has slowed significantly since mid-2013. I continue to predict housing starts of 1.1 million by year’s end, but higher interest rates, financial difficulties in obtaining credit (particularly for first-time home buyers), and economic uncertainties will continue to dampen growth.

The Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo provided additional good news and signs of slight improvement. The HMI increased from 45 in May to 49 in June, its highest point since January. Much of this progress stemmed from higher home builder sentiment in the Midwest, South, and West, particularly the latter two. More importantly, the index of single-family sales increased from 48 to 54, with expected sales over the next six months rising from 56 to 59. The fact that these figures are over 50 indicates that more builders are positive than negative.

Even with these positive developments, NAHB Chief Economist David Crowe noted the tentativeness that still exists in the marketplace. He said, “Consumers are still hesitant, and are waiting for clear signals of full-fledged economic recovery before making a home purchase.” Such caution, he noted, has led home builders to adjust their plans as a result.

Chad Moutray is the chief economist, National Association of Manufacturers. 

housing starts

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Monday Economic Report – May 19, 2014

Here is the summary for this week’s Monday Economic Report: 

There are numerous signs that global economic growth is lower than expected in 2014, with some disappointing data coming in last week. For instance, industrial production numbers were weaker in a number of countries, including slower industrial growth in China in April relative to just a few months ago and falling output in March in the Eurozone. Europe also learned that real GDP rose at the very slow pace of 0.2 percent in the first quarter, prompting new worries about sluggish income and labor market growth on the continent. Meanwhile, in the United States, the Federal Reserve reported that manufacturing production fell 0.4 percent in April. This followed relatively strong rebounds in February and March from winter-related softness in December and January. Still, output continues to reflect modest gains year-over-year, particularly for durable goods.

Despite April’s decline in industrial production, other data suggest that manufacturing activity in the United States appears to be recovering from earlier weaknesses. Manufacturing surveys from the New York and Philadelphia Federal Reserve Banks both show relatively strong expansions in their regions, even as the Philly Fed report eased a bit in May from April. New orders, shipments and employment reflected continuing expansion from the previous survey. More importantly, manufacturers in each district remained mostly upbeat about the next six months, with more than half of the respondents in both surveys anticipating new orders to increase moving forward. For their part, small business owners were also more optimistic, with the National Federation of Independent Business’s (NFIB) key index rising to its highest level since October 2007.

At first glance, the housing data released last week were also quite positive. Housing starts exceeded 1 million again for the first time this year, up from an annualized 947,000 units in March to 1,072,000 in April. New residential permitting was also higher. Yet, the bulk of April’s increases in both measures were primarily due to the more volatile multifamily housing segment. Single-family starts and permits were only marginally higher, but remain below the recent peaks last November. As such, there is perhaps more softness in the market than the headline figure indicated. (We will get existing and new home sales figures this week.) Indeed, homebuilder confidence fell to its lowest point in 12 months, with consumer anxieties cited as a concern. On the positive side, builders were somewhat more hopeful about future activity.

Consumer data were mixed. Retail sales increased 0.1 percent in April, extending the strong gains from February and March. Auto sales comprised much of April’s gains, with retail spending outside of motor vehicles unchanged from March. As such, consumers appeared to be somewhat cautious in April. This showed up in the latest consumer confidence data as well. The University of Michigan and Thomson Reuters reported that consumer sentiment edged slightly lower in May in its preliminary data, with Americans more concerned about current economic conditions. In terms of prices, consumer inflation has started to pick up slightly, led by higher food costs, but core pricing pressures remain below 2 percent at the annual rate, at least for now. A similar pattern was observed for producer prices.

This week, we will get more news on the health of the manufacturing sector worldwide, with flash Purchasing Managers’ Index (PMI) data from Markit for the United States, Europe, China and Japan. The Kansas City Federal Reserve will also release its latest sentiment survey. Finally, the Federal Open Market Committee (FOMC) minutes from its April 29–30 meeting will be released, providing some insights about current Federal Reserve debates. However, that meeting hardly produced any surprises, with the FOMC continuing to taper its asset purchases and the Federal Reserve’s forward guidance still pointing to short-term rate increases sometime next year.

Chad Moutray is the chief economist, National Association of Manufacturers. 

yoy industrial production growth - may2014

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Housing Starts and Permits Were Up Markedly in April, Particularly for Multi-Family Units

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts and permits were up markedly in April, particularly for multi-family units. New housing starts were over one million annualized units again for the first time since December, up from an annual rate of 947,000 in March to 1,072,000 in April. This represented a 13.2 percent gain for new residential construction for the month, with a 26.4 percent year-over-year increase.

With that said, the headline housing starts figure was higher primarily because of the more volatile multi-family construction segment, which increased from 289,000 in March to 413,000 in April.

On the other hand, new single-family construction starts rose more modestly, up from 644,000 to 649,000. This was the third straight increase, but single-family activity moving gradually higher over the longer term, up 9.8 percent since April 2013. Single-family starts, however, remain below their recent peak of 710,000 units observed in November.

Meanwhile, housing permits data also had a nice increase, up from 1,000,000 annualized units to 1,080,000 in April. Similar to housing starts, the monthly jump in April stemmed largely from multi-unit permitting, up from 372,000 to 453,000. This was the fastest pace for multiple unit residential permitting since June 2008. At the same time, single-family activity was up from 600,000 to 602,000. Reflecting recent softness, single-family permits have actually declined 3.2 percent year-over-year and remain below the 645,000 level seen in November’s data.

In essence, the housing data are positive, but perhaps not as upbeat in the final reading. It is definitely good news that multi-family residential activity increased strongly for the month, and the data continue to move in the right direction overall. Yet, single-family housing starts and permits remained challenged, with growth at a much more gradual pace.

The Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo echoed some of these themes. The HMI declined from 46 in April to 45 in May, its lowest level in 12 months and well below the recent high of 58 in August 2013. NAHB Chief Economist David Crowe blamed some of the current weakness on consumer unease, saying “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”

While the data were only marginally different than the month before, the NAHB report did provide some optimism for home builders moving forward. The index for expected single-family sales over the next six months edged higher for the second consecutive month, up from 56 to 57. While the index remains below where it was at the end of 2013, home builders continue to be more positive than negative in their outlook (with an index reading over 50).

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Housing Permits Top 1 Million Again, but Softness Persists for Starts

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts decline by 2,000 in February to an annualized 907,000 units. With that said, new residential construction data for January were revised higher, up from the original estimate of 880,000 to 909,000, making the decline less of a story than the upward revision. Indeed, it appears that the housing market is starting to stabilize and perhaps rebound, particularly when you look at housing permits numbers (see below).

Looking specifically at the starts figures, new single-family residential construction increased marginally in February, up from 581,000 to 583,000. This was still below both the recent peak of 713,000 observed in November and the average for single-family housing starts for 2013 of 621,083. At the same time, multi-family housing starts edged slightly lower, down from 328,000 to 324,000. This was above the 2013 average of 308,000 but below the five-year high of 388,000 seen in November.

This data perhaps reflect continued negative effects from weather. The largest declines in housing starts were in the Northeast, down from 120,000 in January to 75,000 in February. The other region with weaker starts data was the West, but the Midwest and South experienced more residential construction activity for the month.

Meanwhile, the housing permits data provide us with optimism that the sector has begun to improve. New residential construction permits rose from an annualized 945,000 in January to 1,018,000 in February, essentially back to the trend seen in November. Yet, our positivity is nuanced by the fact that the monthly gains in permitting stemmed from multi-family units (up from 346,000 to 430,000), with single-family permit activity still soft (down from 599,000 to 588,000). Nonetheless, this the fourth time in the past 12 months that total permits have exceeded one million, potentially boosting some confidence moving forward.

For its part, the Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo increased from 46 in February to 47 in March. The HMI measured 58 in August, its highest level since November 2005 but has edged lower since then. In fact, this was the second month in a row that the HMI has been below 50, suggesting that more home builders were negative in their assessment of the market than were positive.

The NAHB attributes part of the current weakness among home builders on the weather, but there were other factors cited, as well. David Crowe, NAHB’s chief economist, said that these other factors “include a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”

The index for expected single-family sales over the next six months has fallen from 62 in December to 54 in February to 53 in March. This drop has been disappointing, and yet, putting a positive spin on it, home builders continue to be more positive than negative (with an index reading over 50).

Chad Moutray is the chief economist, National Association of Manufacturers.

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Monday Economic Report – February 24, 2014

Here is the summary for this week’s Monday Economic Report:

Mark Twain once said, “If you don’t like the weather in New England, just wait a few minutes.” Indeed, the poor weather conditions that temporarily closed many facilities and hampered shipments in the manufacturing sector over much of the past few weeks appear to have improved. Yet, the damage can be seen in many of the latest economic indicators released last week. Regional surveys from the New York and Philadelphia Federal Reserve Banks showed softness in new orders and production in February. This followed reports from earlier in the month that manufacturing production and the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) both dropped sharply in January. Housing data were also weak, with new starts down 16 percent in January and homebuilder confidence plummeting 10 points in one month.

To the extent that weather was the primary factor in reducing activity, one should not over-interpret these results to suggest they indicate broad-based weaknesses in the economy. The same data sources provide hints that the momentum manufacturers experienced at the end of 2013 will continue into 2014. For example, housing permits fell less sharply in January, particularly for single-family homes, indicating that the intent to start new residential construction has largely been sustained (even if weather prevented homebuilders from doing so). Similarly, the New York and Philadelphia Federal Reserve surveys continue to report optimism for the next six months, with essentially half of the respondents in both surveys anticipating sales increases. Production, hiring and capital spending are also expected to rise in both regions.

Moreover, the Markit Flash U.S. Manufacturing PMI appeared to shrug off weather concerns altogether, up from 53.7 in January to 56.7 in February. The pace of growth for new orders (up from 53.9 to 58.8) and output (up from 53.5 to 57.2) increased significantly, with sales growth at its highest level since May 2010. Such data reinforce the notion that manufacturing should rebound from recent weaknesses.

Still, there were signs that global growth might also have slowed a bit. While European manufacturing activity continues to expand modestly and has made substantial progress after its deep two-year recession, there was a slight deceleration in the pace of growth in many key indicators in the preliminary February data. Meanwhile, the HSBC Flash China Manufacturing PMI has now contracted for two straight months, down from 49.5 in January to 48.3 in February. This suggests that the easing that we saw in industrial output during the final months of last year might be continuing in 2014. Nonetheless, even with reduced activity, the Chinese economy continues to grow solidly, with real GDP up an annualized 7.7 percent in the fourth quarter and industrial production up 9.7 percent year-over-year in December.

Regarding price stability in the United States, consumer and producer price data showed modest growth in January. Cold weather had an impact, with higher home heating costs pushing up natural gas and electricity prices. At the same time, pricing pressures remained minimal and in line with the Federal Reserve Board’s stated goal of keeping core inflation below 2 percent at the annual rate. This has allowed the Federal Reserve the luxury of pursuing highly accommodative monetary policies to try to stimulate growth. At the same time, the minutes from the January Federal Open Market Committee meeting suggests that better economic data might necessitate higher short-term interest rates by year’s end—sooner than expected. Either way, with the unemployment rate nearing 6.5 percent, the Federal Reserve will need to change its forward guidance. Long-term asset purchases are anticipated to end by mid-2014.

This week, the highlight will come on Friday when fourth-quarter real GDP will be revised. The consensus is for real GDP to decline from its earlier estimate of 3.2 percent to 2.3 percent. We will also get three new perspectives regarding current regional manufacturing activity in surveys from the Dallas, Kansas City and Richmond Federal Reserve Banks. These reports will be closely watched given the declines seen in last week’s releases. In addition, preliminary data on new durable goods orders and shipments are anticipated to reflect significant weaknesses. Other important releases include new data on consumer confidence, new home sales and the national activity index.

Chad Moutray is the chief economist, National Association of Manufacturers.

ppi - feb2014

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Housing Starts Plummeted in January as Weather Took a Toll on New Activity

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts plummeted in February, falling from a revised 1,048,000 in December to 880,000 in January. Both of these figures are at annual, seasonally adjusted rates. (The December figure was originally reported to be 999,000.) Housing starts had been expected to decline to around 950,000, so the news that it decreased 16.0 percent for the month was larger than anticipated. It followed word yesterday that home builder sentiment was also off sharply, and in both cases, poor weather conditions more than likely hampered the ability of starting new residential construction sites.

The decline in housing starts in February occurred for both single-family (down from 681,000 to 573,000) and multi-family (down from 367,000 to 307,000) units. Essentially, the decreases wiped out the rebound that we have seen in the sector since autumn.

On the positive side, housing permits fell less sharply, particularly for single-family homes. Permitting for single-family residential units were off from 610,000 in December to 602,000 in January. The fact that these figures were down only marginally suggests that weather was one of the larger factors in the housing starts decline, with permits reflecting the intent to start at some point in the future. Still, while these data reflect a general rebound in the past couple years, single-family permitting was up just 2.4 percent year-over-year.

Meanwhile, multi-family housing permits fell more significantly for the month, down from 381,000 to 335,000. This component has been highly volatile over the past year, ranging from a low of 291,000 in March to a high of 418,000 in October. On a year-over-year basis, multi-family permitting edged up 2.4 percent, as well, with the growth in homes with 5 or more units.

Overall, we remain optimistic that housing will continue to rebound in 2014, with housing starts approaching 1.1 million by year’s end. To the extent that weather reduced the ability of contractors to start building new homes, the data should start to improve in February and March.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Monday Economic Report – January 21, 2014

Here is the summary for this week’s Monday Economic Report:

Manufacturing production rose 2.6 percent in 2013, slowing from the 3.5 percent and 3.2 percent growth rate experienced in 2011 and 2012, respectively. Yet, the lower 2013 figure stemmed largely from weaknesses in the first half of the year, with manufacturing output rising an annualized 4.2 percent in the second half. As such, the sector ended the year on a strong note, with a pickup in demand and cautious optimism for 2014. Indeed, a number of other reports reached the same conclusion. Surveys from the New York and Philadelphia Federal Reserve Banks and from the Manufacturers Alliance for Productivity and Innovation (MAPI) both observed expanding levels of activity in their latest releases. Respondents to these surveys tended to be mostly upbeat about new orders, shipments, exports and hiring over the coming months—which is definitely good news.

Over the past couple years, the rebound in the housing sector has been one of the bright spots in the U.S. economy. Housing starts were lower in December, but it seems the November data were a bit of an outlier. Absent that soaring figure, new residential construction was generally higher to end 2013, particularly for single-family units. New single-family starts increased 7.6 percent year-over-year. Housing permits also eased slightly in December but increased 4.6 percent from the year before. The reduction in housing activity could have been due to severe winter storms, with somewhat higher borrowing costs as another possible contributing factor. The average 30-year mortgage rose from 4.29 percent in the week of November 27 to 4.48 percent in the week of December 26, according to Freddie Mac. Nonetheless, this still historically low rate helps to explain the generally upbeat assessment of home builders.

Meanwhile, the pace of retail sales slowed in December, with reduced auto sales dragging the overall figure lower. Still, motor vehicle sales increased 5.9 percent in 2013, making it one of the stronger components of consumer spending growth. Excluding autos, retail sales would have risen by 0.7 percent last month, suggesting broader strength than the headline figure implies. On a year-over-year basis, total retail spending increased 4.1 percent, a modest pace that marks the slowest since 2009.

The two measures of sentiment moved in opposite directions. Preliminary data from the University of Michigan and Thomson Reuters on consumer confidence was surprisingly lower for the month, down from 82.5 in December to 80.4 in January. The December data has noted a recovery in perceptions about the economy after falling in the wake of the government shutdown, and the expectation had been for January’s data to extend those gains. With a reduction in sentiment instead, this suggests that the public remains somewhat anxious about economic conditions. At the same time, the National Federation of Independent Business (NFIB) noted an increase in optimism for the second straight month. Underneath the main reading, however, the data were mixed, with more small business owners calling it a “good time to expand” but with sales and earnings remaining subpar.

In terms of news events, outgoing Federal Reserve Chairman Ben Bernanke delivered a speech at the Brookings Institution that provided his take on the lessons learned from the financial crisis. This “exit interview”—as it has been widely dubbed—was mostly a valedictory address defending the Fed’s monetary actions to help stimulate growth in the economy. Coincidently, Bernanke gave it on the same day that the Bureau of Labor Statistics reported that core consumer inflation had risen by just 1.7 percent over the past year. A similar conclusion on producer prices had been released the day before, and in each case, the data suggested that pricing pressures were increasing within an acceptable range, at least for now, according to the Fed’s stated targets.

There will only be a handful of economic data releases this week. From the manufacturing perspective, the highlights will come on Thursday. Markit will provide “flash” estimates for its purchasing managers’ index (PMI) reports for the United States, the Eurozone, and China. In addition, the Kansas City Fed will discuss the latest results of its regional manufacturing survey. In each instance, the expectation will be for manufacturers to note continued growth, building on recent gains. Other data releases include updates on the leading economic index and existing home sales.  

Chad Moutray is the chief economist, National Association of Manufacturers.

manufacturing production - jan2014

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