February 18, 2021 | 09:08
Need to Start? Permission Granted
Expect the unexpected.
There were a few headline surprises this morning in the U.S. data but once you get past them, the broader story of economic recovery is still intact.
U.S. housing starts unexpectedly fell, yes, fell, in January, despite all the talk about strong housing demand and record low inventories of homes available for sale. Starts dropped 6.0% in January, the first decline since August, to a 2-month low of 1.58 mln units annualized. And, there were, on net, downward revisions to the prior two months. The decline was all in single-family homes (-12.2%), while the volatile multi-unit category jumped 17.1%. And, the decline was across most of the country, except in the Northeast. This is probably not over... don't be shocked to see another big drop in February as much of the country struggles with severe weather conditions.
But wait! What's that equation I always point to? We need to see Permits>Starts.
Look beyond that decline, because building permits surged 10.4% last month to 1.88 mln units a.r., the highest since May 2006, and permits are a leading indicator for starts. Homebuilders need to ask permission to build before they actually break ground and homebuilder confidence is at record highs. Permits rose for singles (14½-year high) and multi-units (near 6-year high), allowing us to largely shrug off the setback in actual starts. Besides, the fundamentals haven't changed ... borrowing costs are still super-low, the WFH movement doesn't look to be reversing significantly anytime soon, and the supply of homes available for sale are incredibly low.
Our Michael Gregory digs into the details in his report, "America's Hot Housing to Stay Warm", in last week's Focus (February 12).
Of course, housing demand depends on the strength of the labor market and that is where more patience is needed. Initial jobless claims rose 13k to a one-month high of 861k in the week of February 13—the survey week. The fact that the increase was unexpected, and there was an upward revision (of 55k) to the prior week's number of claims, is disappointing. At least those who are still on UI fell for the fifth straight week. Continuing claims dropped 64k in the February 6 week to 4,494k, the lowest level since the good old days (i.e. last March). And, those who receive PUA and PEUC slipped back below 12 mln.... but still, obviously, too high.
Bottom Line: Most of the data this week—retail sales, industrial production, future homebuilding, inventories—point to a strong start to the year. But it will zig-zag along the way.