EconoFACTS

July 17, 2024 | 10:07

U.S. Housing Starts and Industrial Production Surprise to Upside

Housing starts rebounded 3.0% in June to an annualized 1.35 million, offsetting about two-thirds of the revised 4.6% drop in May (-5.5% previously). The stronger-than-expected increase was primarily driven by lower mortgage rates and builders trying to make up for the existing home inventory shortage. Despite the rebound, starts are nearly 20% below the March 2022 level when the Fed started raising interest rates. The advance was solely due to a strong 19.6% increase in volatile multifamily starts following a decline of 8.2% in May. Single family starts are down 2.2% and have fallen for four consecutive months. Total starts are 4.4% lower than a year ago, a significant improvement from -17.0% in May.

Building permits, a proxy for future homebuilding, rose 3.4% in June to an annualized 1.45 million. This was well above the consensus forecast and up sharply from the 2.8% decline in May. Multifamily permits increased 15.6% while single family permits slumped 2.3% - the fourth consecutive drop. Total permits are down 3.1% year-on-year.

Bottom line: The rebound in housing starts and building permits in June suggests the housing market continues to heal, although a considerable drop in mortgage rates is needed to improve affordability and boost home demand.

Also surprising to the upside this morning was industrial production, which climbed 0.6% in June, double the consensus forecast, though down from an upwardly revised advance of 0.9% in May. These are the strongest back-to-back gains since late 2021. Production increased at an annual rate of 4.3% in the second quarter. The monthly increase was broad-based, led by a 2.8% gain in utilities output. Manufacturing output rose 0.4% on a solid 1.6% advance in motor vehicles and parts production, while mining output increased a more modest 0.3% following a 0.7% drop in May. The solid monthly gain pushed the year earlier growth rate up to 1.6% – the fastest pace since November 2022 – and drove the capacity utilization rate up to 78.8%. That is the highest since September 2023 but almost a percentage point below the long-run average.

Bottom line: Two strong monthly industrial production gains in a row suggests the manufacturing sector could be gaining some traction just before the Fed is expected to lower interest rates in September.

Table 1 - United States — Housing Starts, Building Permits

(millions of units : a.r.)

Source: BMO Economics, Haver Analytics

Table 2 - United States — Industrial Production

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics