Bad Winter Freezes Construction, New Producer Price Report
- January Housing Starts fell by 16.0 percent to an 880,000 unit annual rate. Bad weather was a factor.
- Permits for new residential construction dropped in January by 5.4 percent to a 937,000 unit pace.
- The new Producer Price Index for final demand increased by 0.2 percent in January.
January housing starts were weaker than expected, falling by 16.0 percent to an 880,000 unit annual rate as exceptionally bad weather spread over much of the eastern half of the U.S. Single-family starts fell to a 573,000 unit rate, the weakest since August 2012. Starts in the Northeast Census Region actually increased in January after a weak December. It was in the Midwest where we see the biggest drop in total starts, down 67.7 percent for the month. Permits data is less affected by the weather. U.S. residential construction permits were down by 5.4 percent in January, to a 937,000 unit rate. January permits were still above their 2013 lows. In the Midwest, permits were up by 8.6 percent for the month. Weather may also be a factor in the February data. Despite the weak residential construction indicators, construction employment was up strongly in January, gaining 48,000 jobs. It is reasonable to expect weaker construction employment in February.
This month marks the rollout of new producer price index series by the Bureau of Labor Statistics. Previously, the PPI report focused on prices for finished goods, intermediate goods and crude goods. Now, the new series features the PPI for final demand. Final demand includes goods, services and construction which are sold for personal consumption, capital investment, government purchases and export. We still get a sense of upstream and downstream prices. Intermediate demand is defined as goods, services and maintenance and repair construction sold to businesses, excluding capital investment. Processed goods for intermediate demand include processed food and energy (refinery products and electricity). Unprocessed goods for intermediate demand include agricultural goods, crude oil, ores and minerals. The PPI for final demand increased by 0.2 percent in January and was up 1.2 percent over the previous 12 months.
Market Reaction: Equity markets opened with gains. The yield on 10-Year Treasury bonds is down to 2.69 percent. NYMEX crude oil is up to $102.60/barrel. Natural gas futures up to $4.84/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Housing Starts 021914.