NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: December Housing Starts
KEY DATA: Starts: -4.0%; 1-Family: -6.9%; Permits: +10.9%; 1-Family: +8.3%
 
IN A NUTSHELL:  “Weather was a major factor in the pull back in home construction and the surge in permit requests points to more activity ahead.”

WHAT IT MEANS:  Never underestimate the power of Mother Nature.  December was not a pleasant month in large parts of the country and the bad conditions likely contributed heavily to the December slowdown in home construction.  Just one look at the nearly twenty percent drops in the Northeast and Midwest provide all the ammunition you need to conclude that winter was the key factor. Meanwhile, eased modestly in West and was up in the South.   Looking forward, there is some real reason for hope.  Permit requests soared and ran well ahead of actual construction.  Since builders don’t like wasting money on permits, look for housing starts to rise sharply in the next couple of months.  Another encouraging aspect of the report was the distribution of the rise in permits.  We are seeing gains in both the single-family and multi-family sectors and those increases are spread across the entire county.  

MARKETS AND FED POLICY IMPLICATIONS: Bad weather makes it tough to build and that was the case in December, so let’s just skip the headline housing start decline.  It’s where we go from here that matters and that outlook is solid. Of course, the National Association of Home Builders’ confidence index did ease in January so we cannot start assuming there will be lots of shovels put into the ground.  Nevertheless, housing construction should add to growth going forward even if it doesn’t do a lot for GDP in the fourth quarter.  That should make investors feel a better, if they look at the permits rather than the starts numbers.  As for the Fed, it is unclear what will get the FOMC to finally decide it is time to raise rates but a decline in home construction, even if it is temporary, is not going to start a stampede to tightening.  

FROM: CHRISTOPHER J. BROWN, PRESIDENT

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