March Residential Construction, Consumer Prices, Industrial Production

Starts Hit Million Unit Rate, Consumer Prices Dip, Output Boosted by Weather

  • Housing Starts for March increased by 7.0 percent to a 1,036,000 unit annual rate.
  • Permits for new residential construction dipped in March by 3.9 percent to a 902,000 unit rate.
  • The Consumer Price Index fell by 0.2 percent in March as energy prices eased.
  • The core CPI (excluding food and energy) gained just 0.1 percent in March.
  • U.S. Industrial Production gained 0.4 percent in March as utility output was boosted by cold weather.
  • Capacity Utilization in March increased to 78.5 percent.

U.S. housing starts crested the million unit mark in March for the first time since June 2008. Total housing starts jumped by 7.0 percent to a 1.036 million unit annual rate. As is often the case, the volatility came from the multifamily side where starts were up 26.9 percent for the month. Single‐family starts actually dipped by 4.8 percent after surging in February. Forward‐looking permits tell a less constructive story (literally) as permits declined by 3.9 percent to hit a 902,000 unit annual rate. Permits have remained in the low 900s since last November so we are seeing signs of a flattening out of residential construction, and here is where the risk lies. Because of strong demographic fundamentals and better credit controls, there is a low risk of an impending “correction” in housing. But rather the risk is that construction will flatten out as fiscal drag increases. A metric to watch is new home sales, which have increased, but not by as much as starts. New home sales were up 12.3 percent year‐to‐year in February, compared with a 34.8 percent increase in starts.

Consumer prices eased by 0.2 percent at the headline level in March as gasoline prices fell. Over the past 12 months the headline CPI is up 1.5 percent. Gasoline was down 4.4 percent in March after increasing by 8.6 percent in February. Other prices were also soft. Food was unchanged for the month. Apparel prices dipped by 1.0 percent, possibly held down by bad weather as retailers were stuck holding warm weather clothes despite a lingering winter in the Northeast (Punxsatawney Phil lied this year). The core CPI was up a sedate 0.1 percent in March. Falling crude oil prices through April will likely keep overall consumer prices well contained through the second quarter. U.S. industrial production gained 0.4 percent in March with help from the extended winter weather. Utility output was up 5.3 percent for the month after seasonal adjustment. Manufacturing output was soft, easing by 0.1 percent after a strong 0.9 percent gain in February. Motor vehicle output was up 2.9 percent in March but most other manufacturing sectors eased after a strong February. This mini‐cycle may be a result of inventory restocking after Hurricane Sandy.
Capacity utilization notched up to 78.5 percent in March.

Market Reaction: Equity markets are up. Treasury yields up. NYMEX crude oil is down to $87.72/barrel. The dollar is up against the yen and down versus the euro.

Residential Construction, Annualized Rate

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