Permits Swell in May but Starts Went Away
- Housing Starts for May decreased by 4.8 percent to a 708,000 unit annual rate.
- Permits for new residential construction increased by 7.9 percent to a 780,000 unit rate.
- The Jobs Openings and Labor Turnover Survey for April showed weaker hiring and flat firing.
Residential construction indicators went both ways in May with starts falling as permits increased. Total housing starts decreased by 4.8 percent, down to a 708,000 unit annual pace. This looks like some giveback from the stronger 744,000 unit pace of April, more in line with the 710,000 unit average of November through March. Single-family starts increased by 3.2 percent to a 516,000 unit rate. More volatile multifamily starts fell by 24.2 percent to a 179,000 unit annual rate, well below the 221,000 unit average rate of January through April. New residential construction permits increased in May, up 7.9 percent, to a 780,000 unit annual rate. This is the strongest total permits number since the series bottomed out in March 2009 at 513,000 units. So the trend in permits looks good, suggesting that starts will follow, and that the May dip in starts comes as a result of lumpy multifamily data. Bear in mind though that permits do not have to become starts if builders get spooked by bad news from abroad and/or weak job growth in the U.S.
Today’s JOLTS data gives us some more insight into U.S. labor market conditions. The job openings rate for April ticked down to 2.5 percent with fewer openings in manufacturing, business and professional services and government. The separations rate was unchanged at 3.1 percent. So we can say that through April, slower hiring was not matched by an increase in firing. This is further corroborated by initial claims for unemployment insurance remaining below 400,000 at 388,000 for the week ending June 9. However, the recent trend in UI claims has been upward and a continuation of that upward trend over the next few weeks would be worrisome.
The U.S. economy is balanced on domestic growth while headwinds blow in from abroad. The key question is whether the endogenous growth story is a broad base that will keep the economy from teetering in the wind, or is it narrow, meaning that the U.S. economy is vulnerable to the headwinds. That scope may be defined by credit availability to households. If, with deleveraged households, credit were broadly available and labor markets were stable, then the spend-out of pent-up demand could continue. However, credit is not broadly available to all households (see article in today’s Wall Street Journal) and that may be a limiting factor, narrowing the base of endogenous growth for the U.S., and making it more vulnerable to headwinds from abroad now, and from the self-inflicted “fiscal cliff” early next year.
Market Reaction: Equity markets opened with gains. Treasury yields are up. Oil is up to $84.06/barrel. The dollar is down against the yen and the euro.