Housing Startled
The real estate recovery hit an air pocket in June.
The Commerce Department said that housing starts fell eight percent in June compared with the prior month to a seasonally adjusted annualized rate of 1.43 million, a bit more than the expected decline. The prior month’s surge was revised down slightly to an annual pace of 1.559 million from the previous estimate of 1.63 million.
Despite the decline in June, this report supports the idea that housing bottomed this spring. The six-month average in starts, for example, increased for both single-family and multi-family segments.
The report, however, does suggest that the housing market is not in danger of overheating. Housing starts fell across the board, dropping the most in the Midwest. The Northeast saw a 2.1 percent decline, the South a 4.5 percent decline, and the West a 1.2 percent decline. The Midwest’s drop was 33.1 percent.
Manufacturing Is in a Recession
The slowdown in housing starts is particularly notable because it brings into question the growth of the broader economy. The industrial production figures from the Federal Reserve on Tuesday indicated a broad slowdown. Manufacturing output fell 0.3 percent in June. The index for nondurable manufacturing fell 0.6 percent, and the durable goods index dropped by 0.1 percent.
Manufacturing for consumer goods dropped off by 0.7 percent, probably an indication of the ongoing shift of consumer spending from goods to services. More distressingly, however, manufacturing of business equipment declined by 0.2 percent. This is an indication that businesses expect demand to be soft in the months ahead.
If the slowdown in manufacturing is not offset by a pickup in home building, a recession in the next 12 months becomes more probable.
Single Family Permits to the Rescue?
The bull case for the economy might hinge on single-family permits. These rose 2.2 percent in June to an annualized rate of 992,000. This was the fifth consecutive month of rising single-family permits.
“The recent upturn in single-family permits is likely in response to limited existing home sale inventory and resilient home sales. This is an important development as single-family permits affect the outlook for private residential construction spending – they are well-measured, revised marginally, and reliably point to where construction spending is heading,” Bank of America said in a note to clients on Wednesday.
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