NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: July Housing Starts and Permits/Unemployment Claims
KEY DATA: Starts: -1.1%; Permits: +6.8%/Unemployment Claims: 366,000 (up 2,000)
IN A NUTSHELL: “The housing market is continuing to heal and should be a major part of growth in the quarters ahead.”
WHAT IT MEANS: The housing market is continuing its comeback. Yes, there was a small drop in the number of homes started in July but that does not worry me at all. These data do bounce around and the total number of houses under construction continues to rise. Critically, given the strong increase in permits, the likelihood is that builders will be digging a lot more homes in the months to come. Developers are taking out permits only if they expect to put the shovel into the ground in the immediate future. They are not doing a whole lot of speculation. As for the new construction activity, there was a decline in single-family construction that was almost offset by a jump in multi-family activity. With permit requests for single-family houses rising sharply in July, look for a rebound in this segment of the market. Rising rents and the difficulties in buying homes makes it clear that the multi-family market will be strong for a long time. Regionally, construction picked up was the Midwest but the rest of the nation posted modest to moderate declines. There was one warning sing in the data: The number of homes completed is increasing and sales will have to pick up to keep inventories from growing.
In a separate report, weekly unemployment claims edged up. However, the rise was minimal and much more importantly, the level is consistent with job gains of at least 150,000 to 175,000. We should also see the unemployment rate start declining.
MARKETS AND FED POLICY IMPLICATIONS: This was another good day for economic data as the starts and claims numbers point to improvement in housing and the labor market. Housing is now adding to growth and it looks like it will continue to do that going forward. Of course, we still have a long way to go before the sector gets back to normal as starts need to double before construction is anywhere near what it should be. But that also means there is a lot of growth that could come from housing. As housing improves, construction payrolls will rise and that would add to the belief that the moderate 163,000 payroll rise posted in July will be replicated if not exceeded in the months to come. When you consider that Washington is doing everything possible to destroy confidence, housing and finance are healing but only slowly, Europe is in recession with the monetary authorities continuing to talk big but carry a small stick and Asia is probably in worse shape than the official numbers indicates, it is a wonder that U.S. growth is as good as it is. Imagine what would be the situation if all those hurdles were cleared. That is the way investors will likely read the economic tea leaves.
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