An Unexpected Decline For US Housing Construction In December

And that makes three in a row. Last Friday’s double shot of disappointing economic news in December for retail sales and industrial output was joined by today’s surprisingly soft numbers for residential construction.

Economists were anticipating a modest improvement, but this morning’s update on housing starts in 2015’s final month dispatched a downside surprise. New construction eased by 2.5% last month, accompanied by a 3.9% fall in newly issued building permits, according to the US Census Bureau. The year-over-year comparisons are still positive, which offers some cover for delaying judgment about this sector’s overall signal for business-cycle analysis. But in the current climate of heightened macro worry, the red ink in the latest monthly changes will take another toll on sentiment.

Today’s numbers are clearly part of a worrisome pattern lately: weaker growth. There’s still no clear-cut case for arguing that the US slipped into a recession—based on published data through December across a broad spectrum of indicators. (Details to follow in tomorrow’s monthly business cycle update; meantime, here’s last month’s profile). But today’s numbers certainly offer more support for the Atlanta Fed’s recent nowcasts that point to sharply lower fourth-quarter GDP growth.


Curiously, yesterday’s report on sentiment in the home building industry betrays no sign of trouble. The NAHB’s Housing Market Index (HMI) was unchanged at 60 in January, close to a ten-year high. “There are a number of positive indicators that provide solid evidence this will be a good year for housing and the economy,” said NAHB Chief Economist David Crowe.

Perhaps, although the softer year-over-year rise in starts and permits implies that any growth will be modest.

“Builders are extremely cautious to increase spending for fear of over-extending themselves in case there’s an economic downturn,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott, tells Bloomberg. “We’ll see continued demand for new housing and prices will move higher, but builders aren’t accelerating new construction.”

Meantime, the crowd is inclined to vote on the future by assuming the worst. Gloom is still spreading across global financial markets. In early Tuesday trading in New York, US stocks are down sharply, in part because worries about global macro risk are on the rise.

Today’s update on starts by itself is hardly an open-and-shut case for arguing that the jig is up for US growth. But the clues are mounting that growth has slowed. Making the leap from slower growth to declaring that the US has slipped into a new recession is still premature, although the margin of comfort continues to dwindle.

In any case, the first round of December’s macro profile for the US is nearly complete. The revisions may tell us otherwise, but the current view reveals that forward momentum has stumbled. The focus now turns to the early signals for January, which includes Friday’s flash data for Markit’s US Manufacturing PMI.

The main event, of course, is the January report on payrolls, scheduled for release on Feb. 5. The case for optimism now rests heavily (exclusively?) on this key indicator. Based on the past several months through December, there’s an encouraging tailwind blowing for job creation. If that gives way in the Feb. 5 release, the economy’s bears may finally have a genuine smoking gun.