Housing Starts Increased 2.0% in March
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Implications: After a huge weather-related drop in February, housing starts rebounded in March but not nearly as much as the consensus expected. In fact, March housing starts came in below the lowest forecast by any economics group. The breakdown of home building by region suggests there was a bounce back from the weather: Starts in the Northeast increased at the fastest pace on record in March (going back to 1959), while the Midwest saw a 31.3% gain. Instead, this month the weakness was in the South and West. It's not clear why these two particular regions had a slowdown in housing starts, but regional figures are very volatile from month to month and it is most likely just statistical noise. Other data suggest housing starts will rebound more sharply in the months ahead. The total number of homes under construction, (started, but not yet finished) increased 0.6% in March and are up 16.5% versus a year ago. In other words, homebuilders were busy in March, just not breaking ground as fast as most economists expected. Meanwhile, single-family permits for future building, which are relatively stable month to month, rose 2.1% in March and are up 4.1 % from a year ago. And yesterday, the NAHB index, which measures confidence among home builders, rose to 56 in April from 52 in March. Readings greater than 50 mean more respondents said conditions were good than bad, which bodes well for future home building. Based on population growth and "scrappage," housing starts should rise to about 1.5 million units per year over the next couple of years, so a great deal of the recovery in home building is still ahead of us. A pace of less than 1.5 million means the number of housing units per person is falling. We don't think that's likely to continue when payrolls are increasing more than three million per year and wages are starting to accelerate. Supporting this case, in other news this morning, initial claims for unemployment insurance rose 12,000 last week to 294,000. The four-week moving average is 283,000 and this is now the 6th consecutive week below 300,000. Continuing claims for regular state benefits declined 40,000 to 2.27 million, the lowest level for any week since 2000. It's still early, but our models are tracking a payroll gain of 285,000 in April, a very solid month. On the manufacturing front, the Philadelphia Fed index, which measures factory sentiment in that region, increased to +7.5 in April from +5.0 in March, offsetting yesterday's report of declining factory sentiment in New York.

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Posted on Thursday, April 16, 2015 @ 9:48 AM

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