Is the rising economic anxiety taking a toll on the housing industry… again? The answer depends on the data set you’re looking at. Housing starts fell nearly 5% last month vs. April’s tally, the Census Bureau reports. But newly issued building permits jumped by almost 8% in May to the highest level since September 2008. That’s a sign that housing starts will stay firm if not rise in the months ahead. As economist Richard Yamarone writes in The Trader’s Guide to Key Economic Indicators: “Economists have found that privately-owned housing units authorized by building permits generally precede housing starts by about one month and sales by three.”

It could be different this time, of course, in which case the retreat in new starts last month may be a sign of things to come. But when we filter out the monthly noise, the record over the last 12 months still looks encouraging. Indeed, both permits and starts have increased substantially vs. the year-earlier levels.

In fact, the annual growth pace for both series remains at relatively high levels of 25% (permits) and 28% (starts). It’s anyone’s guess if those rates can be maintained, but for the moment it’s clear that the housing industry is still expanding (or at least was expanding as of May).

“We saw a very strong number in new permits, indicating builders are seeing improving demand,” Russell Price, senior economist at Ameriprise Financial, tells Bloomberg.
But doesn’t the slump in May in the headline housing starts number suggest otherwise? Not necessarily, according to some analysts. As Reuters reports:

Revisions to data from prior months were more upbeat. April’s starts were revised up to a 744,000-unit pace from a previously reported 717,000 unit rate. That was the highest reading since October 2008.
America’s weak housing market has dragged on growth in the economy for the last six years, but signs of insipient recovery have led many economists to predict a reversal in that trend this year.
New permits for building homes jumped 7.9 percent to a 780,000-unit pace. That was the highest since September 2008 and well above analysts’ forecasts.
“Several aspects of the report paints a somewhat brighter picture than the headline suggests,” said Peter Newland, an economist at Barclays in New York.

Back in December I wondered if the housing market was finally poised for a genuine recovery. Six months later, the news from Europe and the potential for macro blowback in the U.S. over the approaching fiscal cliff inspires caution for expecting too much. But if there’s trouble brewing for housing, we’ll soon see it by way of much darker numbers. For now, however, the bias for growth in starts and permits is intact.