Tag: Housing Starts

Monday Economic Report – March 24, 2014

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

For much of the past month, people have been questioning how much of the recent softness in the manufacturing sector was due to weather and how much stemmed from other factors. The data released last week support the view that it was largely weather related, with numerous winter storms keeping shoppers from the stores and closing factories temporarily. Fortunately, manufacturing activity has rebounded in the latest reports. For instance, manufacturing production increased 0.8 percent in February, nearly offsetting January’s 0.9 percent decline, with capacity utilization for the sector rising from 75.9 percent to 76.4 percent. Similar rebounds were seen in the March surveys from the New York and Philadelphia Federal Reserve Banks, and more importantly, manufacturers continue to be mostly upbeat about new orders and shipments over the next six months.

In its monetary policy statement, the Federal Reserve Board’s Federal Open Market Committee (FOMC) acknowledged the negative effects of “adverse weather conditions” on recent activity. It also provided the following evaluation of the current economic environment:

Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

The biggest news from the FOMC’s statement was the change in its forward guidance, as expected, to no longer mention an unemployment rate target. Since its December 2012 meeting, the FOMC has said it would pursue a highly accommodative monetary policy until the unemployment rate hit 6.5 percent and/or long-term inflation consistently exceeded 2.0 percent. With unemployment falling, this put the Federal Reserve in a predicament because job growth continues to be a challenge, particularly for the long-term unemployed, and progress in the unemployment rate fails to acknowledge loforw participation rates and underemployment that exists in the labor market. For this reason, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota opposed the change in the Fed’s guidance, and he subsequently said that he wanted a 5.5 percent unemployment rate target.

In the end, however, short-term interest rates cannot hover around zero percent forever, particularly with the U.S. economy improving. The Federal Reserve now forecasts real GDP growth in 2014 of 2.8 percent to 3.0 percent, with the unemployment rate falling to 6.1 percent by year’s end. The FOMC continued to taper its long-term asset purchases, down from $65 billion each month to $55 billion, and short-term interest rates are now expected to start rising sometime in 2015. (This is true even with new Federal Reserve Chair Janet Yellen’s suggestion that rates might begin to increase around six months after quantitative easing ends, a comment that spooked markets on Wednesday.)

Fortunately for the Federal Reserve, inflationary pressures remain minimal, allowing the FOMC to continue its stimulative measures for now. Consumer prices rose 0.1 percent in February, with core inflation increasing 1.6 percent over the past 12 months. Of course, higher interest rates could negatively impact spending, particularly for large consumer items and for business investments.

Along these lines, housing starts have stabilized a little, up from 905,000 annualized units in January to 907,000 in February, but still remain somewhat weak. On the positive side, housing permits—a proxy of future activity—exceeded 1 million for the first time since November, largely on gains in multifamily residential construction. Single-family permitting remained soft, however, and homebuilder sentiment continued to be down from where it was just a few months ago. In addition to weather challenges, National Association of Home Builders (NAHB) Chief Economist David Crowe attributes the current weakness to “a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”

Today, we will get March Markit Flash Purchasing Managers’ Index (PMI) data for the United States, China and Eurozone. In particular, economists will be looking to see if Chinese manufacturing activity continues to decelerate and if the slight easing in February’s data was a one-month phenomenon. (For more on international trends, see the latest Global Manufacturing Economic Update, which was released on Friday.) Other highlights this week include updates on consumer confidence, durable goods orders and shipments, GDP, manufacturing surveys from the Kansas City and Richmond Federal Reserve Banks, personal income and spending and state employment.

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

fed funds rate - mar2014

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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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Housing Starts Come Back Down to Earth in December, but Still Suggest Recent Progress

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts come back down to Earth in December after soaring in November. The annualized pace of new housing starts dropped from a revised 1,107,000 in November to 999,000 in December. (The November figure was originally estimated to be 1,091,000.) Still, the trend over the past few months has been a positive one, with housing starts up from 873,000 at the annual rate in September.

In addition to severe winter storms, which might have contributed to the deceleration in activity in December, higher mortgage rates might have had an impact, too. Freddie Mac reported that 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.

In many ways, the November data were a bit of an outlier, and if we were to remove it from the analysis, housing starts have generally moved generally higher, particularly for single-family units. For instance, while new single-family housing starts dropped from 717,000 in November to 667,000 in December, this was still higher than the 600,000 observed in November. In fact, single-family housing starts have risen 7.6 percent over the course of the past 12 months, which is good news.

New multi-family residential construction has been more volatile, and while the longer-term movement has been upward, the data in 2013 was quite choppy. For the month, new multi-family housing starts were off from 390,000 to 332,000. This was still better than the 299,000 recorded in October, but that is not the whole story. This data has been up and down all year. As evidence of this, new multi-family housing starts were 363,000 in December 2012, suggesting a decrease of 8.5 percent year-over-year.

Meanwhile, housing permits declined from a revised 1,017,000 in November to 986,000 in December. The upward trend for permits has been somewhat volatile, as well, with December’s figure more or less equivalent to where it was in May, for instance. The decrease in December stemmed entirely from single-family permits, which fell from 641,000 to 610,000. Multi-family permitting was unchanged at 376,000.

On a year-over-year basis, housing permits have increased 4.6 percent since December 2012. This helps to give us some comfort. Even with some retrenching in the latest data, residential construction activity was up modestly in 2013, and the upward movement at the end of the year suggests continued progress in the new year.

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

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Monday Economic Report – December 23, 2013

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

The U.S. economy grew a surprisingly strong 4.1 percent in the third quarter, according to the most recent revision of real GDP from the Bureau of Economic Analysis. While inventory replenishment accounted for a large portion of this increase, consumer and business spending continue to boost overall economic activity. I expect real GDP growth of 2.5 percent in the current (fourth) quarter, essentially the same pace for 2013 as a whole. For 2014, the economy should expand by 3.0 percent, which would be the first year since 2005 that the annual average would grow by that amount.

A number of data sources supported the view that economic activity has begun to improve, continuing the accelerating pace in the second half of 2013. For instance, manufacturing production rose 0.6 percent in November and 2.9 percent year-over-year. On the latter figure, the annual pace has made definite progress since July’s 1.2 percent pace. The Manufacturers Alliance for Productivity and Innovation (MAPI) predicts that industrial production will accelerate to 3.1 percent in 2014 and perhaps 4.1 percent in 2015.

A number of regional surveys show manufacturers tend to be mostly upbeat about new orders and output in the coming months. This includes the latest reports from the Kansas City, New York and Philadelphia Federal Reserve Banks. The more optimistic future assessment was true despite notable weaknesses in the current environment, particularly in the Kansas City and New York surveys. Similarly, the latest Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) suggested that output growth remained near the more robust pace at the beginning of 2012, with modest growth overall. Meanwhile, we continue to see stabilization in the Chinese and European economies. These releases show hiring growth remains modest at best.

The housing market also bounced back strongly in November. New housing starts soared to 1.09 million units at the annual rate, the highest level since February 2008. Both single-family and multifamily starts were up sharply for the month, and overall, new residential construction has increased nearly 30 percent over the past 12 months. Furthermore, new housing permits have also exceeded 1 million units for two straight months, which should bode well for future activity. The gains in residential activity have also helped to lift homebuilder confidence once more, according to the National Association of Home Builders and Wells Fargo. I expect that housing will continue to be one of the bright spots in the economy, particularly as borrowing costs remain at historic lows and the “sticker shock” of higher rates wears off.

The improvements in the economy have led the Federal Reserve to finally start to pare back its latest quantitative easing program. At the conclusion of its December Federal Open Market Committee (FOMC) meeting, the Federal Reserve decided to begin tapering its purchases of long-term and mortgage-backed securities, down from $85 billion each month to $75 billion starting in January. The expectation is that this will set in motion future reductions in these purchases, with all buying ending sometime in mid-2014. However, the Federal Reserve will still be pursuing a “highly accommodative” monetary policy, with short-term interest rates near zero for the foreseeable future. In his press conference afterward, Federal Reserve Board Chairman Ben Bernanke suggested short-term rates might not move up until after the unemployment rate hits 6.5 percent, which it is not likely to do until the end of 2014. He made a similar comment in his speech to the National Economists Club in November. Fortunately, pricing pressures remain quite low for now, providing the Federal Reserve with more time to pursue its stimulative measures.

This week will be a shortened one due to the Christmas holiday, but there will still be some key data releases. Later this morning, we will get the latest reads on personal spending and consumer confidence, both of great importance in terms of holiday spending. Sentiment had improved in the initial estimate from the University of Michigan and Thomson Reuters, rebounding from the dips in perceptions seen during the government shutdown. This should help retail sales, which have grown modestly of late. We will also learn more about the health of the manufacturing sector with a new report on durable goods sales and the latest survey from the Richmond Federal Reserve Bank.

Chad Moutray is the chief economist, National Association of Manufacturers. Due to the holidays, there will be no report issued during the week of December 30. The schedule will resume on Monday, January 6.

housing starts and permits - dec2013

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MAPI: Manufacturing Production Expected to Increase 3.1 Percent in 2014

The Manufacturing Alliance for Productivity and Innovation (MAPI) released its industrial outlook for next year. It predicts industrial production growth of 3.1 percent in 2014, up from the 2.1 percent rate seen for 2013. Moreover, it expects output to continue to accelerate into 2015, with production growth of 4.1 percent forecasted.

This relatively upbeat assessment of future activity in the sector is buoyed by several factors, according to MAPI. It says that “surprisingly robust employment growth” and rising wealth from higher asset prices will lead to stable growth in consumer spending. In addition, improvements in the global economy should increase overall export sales, which have risen disappointingly slow in 2013. Beyond that, the recently-passed government budget deal should help to alleviate some of the uncertainty in the market, at least to the extent that we will not have another shutdown for the next two years. This means that government uncertainty should provide less of a drag than what we have seen this year.

MAPI expects the housing sector to continue to rebound, with housing starts accelerating in both 2014 and 2015. Just yesterday, we received a positive affirmation of this with very strong numbers for housing starts in November. They also forecast 5 percent growth in private, nonresidential construction next year, with public sector construction spending flat.

Looking at specific sectors, MAPI anticipates healthy gains of five percent or more in the following manufacturing segments: aerospace products and parts; communications equipment; electrical lighting equipment; engine, turbine, and power transmission equipment; household appliances; industrial machinery; iron and steel products; mining and oil and gas field machinery; and ventilation, heating, air conditioning, and commercial refrigeration equipment.

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

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Housing Starts Soar in November to 1.09 Million Units, the Most since February 2008

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts soared in November to their highest level since February 2008. This was the first housing starts release since before the government shutdown, so we also received new data for September and October. New residential construction starts rose from an annualized 883,000 in August to 873,000 in September to 889,000 in October to 1,091,000 in November. The increase between October and November was a whopping 22.7 percent increase, and this was the first time that housing starts had surpassed the one million mark since March.

Over the past 12 months, housing permits have risen 29.6 percent, with new single-family construction up 26.2 percent. This is yet another sign that the housing sector’s rebound has continued, even with a bit of a pause in recent months.

Both single-family and multi-family housing starts were up sharply. New single-family construction starts have risen from 580,000 at the annual rate in September to 602,000 in October to 727,000 in November. This was the most single-family starts since March 2008. Multi-family starts have grown from 287,000 in October to 364,000 in November. This was the fastest pace of multi-family starts since February 2008, but it was close to the 363,000 observed in December 2012.

Lower borrowing rates have helped to fuel this growth. For example, the average 30-year fixed-rate mortgage was 4.57 percent during the first week of September, according to Freddie Mac, but it fell to 4.10 percent by the last week of October. It rose to 4.29 percent by the end of November, but in general, Americans have begun to come back into the housing market as rates have fallen and the “sticker shock” of higher rates has become less pervasive.  (The average was 3.35 percent as recently as the first week of May.)  The surge in November could also be a reaction to the anticipated increase in mortgage rates moving forward, especially with the Federal Reserve beginning to slow its asset purchases soon.

Meanwhile, housing permits declined from 1,039,000 in October to 1,007,000 in November. I would not make too much of this decrease, however, as it stemmed largely from the highly-volatile multi-family sector. Single-family housing permits rose from 621,000 to 634,000, the most since April 2008. Single-family permits have increased 10.5 percent year-over-year, with total permitting up 7.9 percent. Moreover, this was the second month in a row with permits exceeding one million, suggesting the recent pickup has been sustained.

The gains in housing activity have also helped to lift home builder confidence once more. The National Association of Home Builders and Wells Fargo reported that its Housing Market Index rose from 54 in November to 58 in December. This returns the HMI back to where it was in August, suggesting that the recent lull in the housing market has begun to subside.

The larger story is the fact that the HMI has now been over 50 for seven straight months, indicating that more builders are positive than negative in their outlook. This should bode well for the industry as we move into 2014. The indices for current (up from 58 to 64) and expected (up from 60 to 62) single-family sales are a further indication of this. Indeed, the traffic of potential buyers (up from 41 to 44) has picked up, even as it could be more robust.

In conclusion, I expect for the housing market to continue to expand as we move into the new year, with the housing starts and permits data encouraging overall. With that said, I also anticipate higher (but still historically low) mortgage rates in the months ahead. It will be interesting to see how increased borrowing costs might dampen demand. Nonetheless, I still feel that housing will remain a bright spot, particularly with improvements in the economy and home buyers becoming more accustomed to the “new normal” in mortgage rates.

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

housing starts

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Housing Permits Soar to Over One Million Units, But Starts Data Delayed Until December

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing permits soared to over 1 million units in October, breaching a level not seen since April. This is the first release of housing data since the government shutdown, and the report adds to our knowledge of permits for the months of September and October. Housing permits rose from a revised 926,000 annualized units in August to 974,000 in September to 1,034,000 in October.

Unfortunately, this report did not include new data for housing starts and housing completions. The press release stated, “The lapse in federal funding affected the data collection schedule for the Survey of Construction, the source of data on new housing units started and completed.” In other words, we will need to wait until the next release date (December 18) to learn more about new residential construction activity.

Returning to the housing permits data, the gains stemmed entirely from multi-family units, with permits for that component up from 299,000 in August to 359,000 in September to 414,000 in October. This was the fastest pace since June 2008. Multi-family construction permits have been quite volatile this year. After peaking at 391,000 in April (the last time that total permits exceeded 1 million), they declined significantly, bottoming out at 293,000 in June. This latest data suggests that the pace of construction of apartments, townhouses, and condos has rebounded to levels not seen since the spring, but future data will tell whether this is the beginning of an upward trend or just another blip in its recent up-one-month, down-one-month cycle.

Meanwhile, single-family residential construction permits have been mostly stalled, averaging 611,700 year-to-date.  Looking at the last three months, housing permits have shifted from 627,000 in August to 615,000 in September to 620,000 in October.

Of course, the last few months have also seen a lot of swings in mortgage rates, dampening some of the enthusiasm in the housing sector. According to Freddie Mac, the average 30-year mortgage rose from 3.35 percent the week of May 2 to 4.57 percent the week of September 12. It has settled down a little since then, averaging 4.22 percent last week.

In summary, the strong housing permits data in October were encouraging, particularly to the extent that permitting serves as a proxy for future construction activity. The good news in the housing sector is that the longer-term trend remains a positive one, with home builders still mostly upbeat despite recent softness. Lower mortgage rates have also provided a bit of a boost of late, even though they remain above the borrowing costs seen in the spring.

Yet, this report also hints that some weaknesses continue to persist. Almost all of the increase in housing permits in October was in the highly volatile multi-family unit component. Single-family activity was essentially flat over much of the past few months. If housing is going to once again start growing strongly, we will need more single-family residential construction activity. I expect that to happen moving forward. This is particularly true given recent improvements in the economy from softness earlier in the year, and as potential buyers get used to the “new normal” in (still historically low) mortgage rates, that will also help.

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


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