August 16, 2023 | 09:35
U.S. Housing Starts and Industrial Production Bounce Back
U.S. housing starts exceeded expectations and rose 3.9% to a two-month high of 1.45 mln (annualized) in July. However, that comes after the prior month was revised down to show an 11.7% drop (prev. -8.0%). Excluding the South, starts jumped 10.7%, as every other region saw an increase. The turnaround in the headline number was powered by single-family units, which rose 6.7%, halting two straight months of declines, while volatile multis dropped 2.9%.
Meantime, the pipeline for future housing starts, i.e., building permits, was disappointing in July as permits were little changed at 1.44 mln (annualized). The good news is that single-family permits performed a touch better (+0.6%); but with (contract) mortgages rates nearing 7% (according to Freddie Mac), homebuilder confidence took a step back in August after seven consecutive monthly gains. According to August’s NAHB survey, homebuilder sentiment fell six points to 50 as high interest rates and construction costs are slowing the demand for new homes. That doesn't bode well for the future direction of permits.
In a separate release, industrial production also beat expectations, rising 1.0% in July after two months of declines. Some of that lofty headline figure was powered by a strong month for utilities (+5.4%) amid the very high temperatures in July, but there was some breadth elsewhere as both manufacturing and mining output increased 0.5%. The former was driven by a continued rebound in motor vehicle and parts production, which jumped 5.2%. Excluding that sector, factory output managed a more meagre 0.1% gain.
Bottom Line: Housing starts and industrial production rose in July after showing earlier weakenss to start the summer. That bodes well for the initial read on the third quarter, but the economy is flashing signs of slowing activity in the months ahead. For instance, although the current pipeline of multifamily units will continue to boost rental supply this year and next, higher for longer interest rates are creating a chill among builders that will likely curb future residential investment activity.