September Residential Construction, Retail Sales, CPI, IP/CU

More Momentum in Housing, Other Data Support Moderate Gains in Q3

  • Housing Starts for September increased sharply by 15.0 percent to an 872,000 unit annual rate.
  • September Permits for new residential construction jumped by 11.6 percent to an 894,000 unit rate.
  • Retail Sales for September gained 1.1 percent on autos, gasoline and electronics.
  • The Consumer Price Index for September increased by 0.6 percent, boosted by gasoline.
  • The September Industrial Production Index increased by 0.4 percent as manufacturing improved.

This week’s economic data so far remain supportive of the moderate growth story for Q3. Housing is leading the way with strong gains in September. Housing starts increased sharply by 15.0 percent for the month, hitting an 872,000 unit annual rate. This is not as questionable as the September unemployment data, but it does invite some skepticism. It is reasonable to say that housing markets are improving and that construction continues to climb. But we could easily see some giveback in the construction numbers later this year due to weather or simply statistical noise. The gains in starts in September came from both single- and multifamily construction. Single-family starts were up 11.0 percent to a 603,000 unit pace, the strongest reading since August 2008. Multifamily starts gained 25 percent to 260,000 units. Permits continued to increase, up 11.6 percent to an 894,000 unit pace. The National Association of Home Builders reported that home builder confidence increased in October, for the sixth consecutive month and is now at the strongest level since June 2006. House construction remains well below long-term demographic demand, so there is ample upside potential. However, since it is a smaller part of the economy now, compared with 2006, the multiplier through the rest of the economy is also smaller. Still, every bit helps.

Retail sales for September increased by 1.1 percent, with a 1.3 percent gain in motor vehicles and parts. The auto retail sales gain looks weak relative to the unit sales numbers which increased by about three percent for the month. Retail sales ex-autos also gained 1.1 percent in September. Higher gasoline prices were at work, with gas station sales up 2.5 percent. But we also see some real gains in electronics and appliance stores, up 4.5 percent. Expect to see strong electronics sales in October due to the launch of the iPhone5. Speaking of gasoline prices, the September consumer price index gained 0.6 percent, boosted by the energy component which gained 4.5 percent. The spike in gasoline prices in California in early October may show up in next month’s report, keeping upward pressure on the energy index. Food prices were sedate, gaining just 0.1 percent despite some upstream gains in producer food prices. The core CPI (excluding food and energy) increased by a calm 0.1 percent for the third consecutive month. Over the last 12 months the headline CPI is up a non-threatening 2.0 percent, as is the core index. Industrial production for September gained a moderate 0.4 percent. Manufacturing output increased by a modest 0.2 percent, reversing the decline in August. Utility output was up 1.5 percent, rebounding from a weak August. Motor vehicle assemblies dipped in September to a 9.64 million unit rate, as unit auto sales climbed.

Market Reaction: Equity markets are up. Treasury yields are down at the long end of the yield curve. NYMEX crude oil is up to $91.96/barrel. The dollar is down against the yen and up versus the euro.

Click here for a PDF version of the Comerica Economic Alert: Housing Starts 101712.

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