July 18, 2012
A Four-Year High For Housing Starts In June
Today’s update on housing starts and new building permits for June delivers another day of upbeat economic news, following yesterday’s encouraging report on industrial production for last month. June overall is still a mixed bag of economic data (retail sales, ISM Manufacturing Index, and payrolls in particular were disappointing). But it’s hardly trivial that the housing market continues to grow—a trend that appears intact, based on today's news for permits and starts.
As the first chart below shows, new housing starts rose last month to a new post-recession high of an annualized 760,000. The last time starts were this high was October 2008. Permits retreated slightly in June, but this isn't cause for alarm since the year-over-year trend continues to look quite healthy for both of these leading indicators.
Indeed, as the second chart illustrates, the revival in starts and permits still looks encouraging on an annual basis. Both indicators are advancing at roughly 20% a year. That's a sign that the housing sector has a fair amount of growth momentum. Yes, it could all disappear tomorrow, but let's remember that the rebound in housing didn't suddenly drop out of the sky. Last December, I noted that it appeared as though the housing market had finally turned a corner in favor of growth. More than six months later, the data offer persuasive corroboration that the sector's growth is the real deal this time. If so, the revival will continue to bestow considerable benefits on the overall economy at a critical (and, yes, still-dangerous) period. Housing's share of the U.S. economy may be as high as 18%, according to the National Association of Home Builders, and so growth--any growth--is a considerably hefty net plus for the broad trend.
One recent study goes so far as to claim that Housing Is The Business Cycle. An exaggeration? Perhaps, although this much is clear: a housing market that's no longer a huge negative influence on the broader economy is a substantial change for the better. No, housing can't save the business cycle if certain other risk factors continue to deteriorate in the months ahead. But for now, there's one more factor in the plus column to consider.
On that note, the full set of June economic and financial market indicators is nearly complete for nowcasting recession risk. The May profile in this effort suggested that the economy wasn't in recession territory as of that month, and it's looking like more of the same applies for June. The future, of course, may tell us otherwise, but for now there's still a case for modest if anxious optimism, based on the numbers in hand. (I'll have a detailed update on my recession risk estimate as of June in the days ahead.)
Today's housing update "was a good report overall," Martin Schwerdtfeger, an economist at TD Bank, says via AP. That fact that new permits continue to remain high "suggests that the momentum in building activity observed in recent months should carry forward."
“Demand has bottomed out and we expect continued improvement,” notes Yelena Shulyatyeva, a U.S. economist at BNP Paribas. “We’re in a recovery, a very slow one,” she tells Bloomberg.
That doesn't mean that economy is home free. Indeed, as Fed chairman Ben Bernanke predicted in Congressional testimony yesterday, the decline in the unemployment rate will continue to be “frustratingly slow.” Nonetheless, if the housing market was still suffering, the odds would be a lot lower for expecting even slow progress.
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Correction: An earlier version of this story incorrectly stated that both starts and permits were growing well in excess of 20% a year. Also, the chart of annual data that was initially published didn't show the latest data through June. In fact, starts rose at well over 20% while permits through June were up just under 20% vs. a year earlier. The text and chart have been changed to reflect the corrections. Sorry for any inconvenience.
Posted by jp at July 18, 2012 9:36 AM