March Residential Construction, Industrial Production

Housing Takes Two Steps Forward and One Step Back, Production Just Goes Sideways

  • Housing Starts for March decreased by 5.8 percent to a 654,000 unit annual rate.
  • Permits for new residential construction increased by 4.5 percent to a 747,000 unit rate.
  • Industrial Production for March was unchanged. Capacity Utilization slipped to 78.6 percent.

Economic data from March continues to confound expectations in a negative way, perhaps recoiling from weather-aided strength earlier over the mild winter months. One of the more weather-dependent industries, residential construction, shows mixed signals for the month, which still include good forward-looking indicators. The mix comes from an unexpected decline in housing starts, accompanied by solid gains in construction permits and in completions. Total housing starts declined by 5.8 percent in March to hit a 654,000 unit annual pace, now well below the January high rate of 714,000 units. Single-family starts were essentially unchanged for the month, ticking down 0.2 percent to a 462,000 unit rate. The volatility in starts came from the multifamily side where starts for structures with five or more units dropped 19.8 percent to 178,000. Permits for new construction increased for the third straight month, up 4.5 percent in March to a 747,000 unit annual rate, the strongest annual rate for permits since September 2008. So that is an encouraging sign. Completions of residential housing increased by 4.2 percent in March, implying that builders focused on finishing ongoing projects rather than starting new ones last month. In sum, residential construction still looks like it is lifting off the bottom and weather-related volatility will ease as we move through the spring.

Total industrial production was unchanged in March for the second month in a row. Utility output rebounded after seasonal adjustment, up 1.5 percent, coming off of large declines in December and January. Overall manufacturing output was weaker than expected, declining by 0.2 percent in March. Production declines were broad-based across industry groups, with the exception of motor vehicles and parts. Motor vehicle and parts production increased by 0.6 percent in March even as total vehicle assemblies dipped from a 10.12 million unit annual rate in February to 9.99 in March. Amongst durable goods industries, declines were seen in nonmetallic minerals, primary metals, furniture, electrical equipment and aerospace. In the nondurables industries, losses were reported in printing, apparel and leather, and petroleum and coal products. Overall capacity utilization dipped slightly to 78.6 percent.

Market Reaction: Equity markets opened with gains. Treasury yields are up at the long end of the yield curve. Oil is up to $104.67/barrel. The dollar is up against the yen and down against the euro.

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