Today’s updates on US economic activity—housing starts and jobless claims–offer a fresh round of encouragement for expecting moderate growth in the near term. The numbers are a net positive for monetary hawks who argue that the Federal Reserve should announce a rate hike today. The counterpoint is that economic growth has been sluggish lately, raising concerns that it’s still too early to start tightening policy. Nonetheless, the data du jour provide some support for the view that the US economy is still on a path of moderate growth.
New filings for unemployment benefits dropped to an eight-week low last week, pushing claims closer to the four-decade low that we saw in July. Meantime, residential construction for August declined, and by more than expected, but the latest data point looks like noise. Why? The year-over-year trend for housing starts is still rising at a solid pace and newly issued building permits—a leading indicator for starts—perked up last month. In both cases, growth strengthened in August in annual terms. Perhaps, then, it’s no surprise that sentiment in the home building industry inched higher this month, reaching a 10-year high via an index from the National Association of Home Builders
Let’s take a closer look at today’s numbers, starting with claims. The new release reaffirms the bullish signal that’s been conspicuous all year. New filings fell 11,000 last week to a seasonally adjusted 264,000—the second-lowest reading since the early 1970s! That’s no anomaly, as the year-over-year comparison reminds. Claims dropped by nearly 9% last week from a year ago. That’s hardly a surprise at this point—claims have been falling in annual terms, with rare exception, for several years. As bullish signals for this leading indicator go, the updates in recent months are about as good as it gets. Using this data as a guide points to ongoing growth for the labor market, which implies that the economy will continue to expand as well.
The trend in housing starts also looks upbeat. The bullish aura is relatively mild compared with starts, but the year-over-year numbers still offer a persuasive case for expecting a moderate pace of growth in the near term. The modest monthly dip for August suggests otherwise, but the annual rate of growth remains solid. Starts and permits posted strong year-over-year gains in August–+16.6% and +12.5%, respectively.
The bottom line, today’s numbers offer additional if modest support for the hawks’ argument that the Federal Reserve should raise interest rates today. The doves will say otherwise, and for good reason—the broad US macro trend has stumbled lately. The good news is that the latest housing and jobless-claims numbers suggest that the recent soft patch for growth doesn’t signal the end of the recovery that began in mid-2009.
“The housing recovery will continue to be bumpy, but we expect it to continue,” says Michelle Meyer, the deputy head of US economics at Bank of America via Bloomberg. “The labor market has improved, the economy has improved and we’re seeing pent-up demand for housing. So the backdrop is very supportive.”