EconoFACTS

January 19, 2023 | 09:06

Some Better Details Beneath Weak Headlines

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

U.S. recession expectations leaped (or is it leapt?) up this week on the back of far weaker-than-expected reports on retail sales and industrial production. So, it is understandable that one would feel a little anxious ahead of today's round of U.S. economic data. All in, the results were not as bad as expected.....

Housing activity ...

U.S. housing starts fell 1.4% to a 5-month low of 1.382 mln units annualized in December, with downward revisions to the prior two months and below the 12-month average of over 1.5 mln. The declines were felt across the country except in the Northeast (even with the extreme weather in the latter part of the month). Here's some 'better' news ..... all the decline was in multis (-19.0%); single family starts rose for the first time since the summer (+11.3%).

But building permits unexpectedly backtracked last month, down 1.6% to 1.33 mln units annualized, the third decline in a row but a lot 'better' than November's 10.6% nosedive. The future isn't as bright given that the level of permits is below starts. Recall the latest Beige Book, which noted the pressure the sector is under. In fact, the report cited one realtor in the Cleveland area who said that the housing market was "recession" and that "the only reason that there had not been significant declines in home prices was because of extremely low inventory levels."

Interesting, though, homebuilders would argue against that. The NAHB index rose for the first time in over a year in January. Of course, the reading of 35 is still quite dark (100 is considered "all good") but .... well, baby steps.

Labor market activity ...

Still tight. Initial claims fell for the third week in a row, down 15k in the key survey week of January 14 to 190k, which is the first sub-200 reading since September. But those staying on UI claims, i.e., continuing claims, rose for the first time in 3 weeks, up 17k to 1,647k in the week of January 7.

Manufacturing activity ...

The Philly Fed improved for the second month in a row in January. The diffusion index climbed 4.8 pts to -8.9 or, on an ISM-adjusted basis, up 3.1 pts to 49.2. Still below 50 but clawing its way back, unlike the Empire State version. And the expectations component (6-months out) returned to positive territory for the first time since May. (Even the Empire survey rose... but that seemed to be lost in the headline plunge.) Note that prices paid fell again, this time, to the lowest level since August 2020.

Bottom Line: Slower growth is need for cooler inflation. And isn't that the goal?

Table 1 - United States — Housing Starts, Building Permits

(millions of units : a.r.)

Source: BMO Economics, Haver Analytics