March Residential Construction, Industrial Production

Starts Up, Production Up and Positive for GDP

  • March Housing Starts were up by 2.8 percent to a 946,000 unit annual rate.
  • Permits for new residential construction decreased in March by 2.4 percent to a 990,000 unit pace.
  • Industrial Production for March increased by 0.7 percent, with a strong upward revision to February.

Residential construction activity is showing an improving trend after a tough winter. Housing starts were up by 2.8 percent in March, to a 946,000 unit pace, propelled by a rebound in single-family starts. Single-family starts increased 6.0 percent in March. Multifamily starts eased in March by 6.1 percent. Very tight housing markets in many major markets are providing ample incentive for further gains in both single-family and multifamily construction. Building permits for residential construction fell by 2.4 percent in March to a 990,000 unit pace. The March dip in permits comes after a strong February. Also, the level of permits remains above starts for the month, so the dip in permits in March should not be interpreted as a sign of weakness in residential construction. New residential completions were essentially unchanged in March after a strong February.

Industrial production was up by a solid 0.7 percent in March, and February production was revised up to show a strong 1.2 percent gain. This is the strongest two-month percentage gain since April-May 2010. The March increase in industrial production was supported by a 1.0 percent increase in utility output following a small dip in February. Still, manufacturing output was up 1.4 percent in February and another 0.5 percent in March for a strong back-to-back showing. The February gain in manufacturing output was driven by the auto sector. In March gains were more broad-based. This has positive implications for GDP growth for the recently completed first quarter, implying upside risk for our forecast of a very weak 0.5 percent growth rate for real GDP. Today’s IP report also shows good momentum heading into the second quarter. We expect to see a pickup in real GDP growth in the current second quarter to about 2.9 percent. Overall capacity utilization for March increased to 79.2 percent. Capacity utilization for many industries is close to its long-run average. Most industries remain well shy of their 1994-95 highs for capacity utilization. But as we cross from average to above-average capacity utilization, pricing power increases…something to watch for going forward.

Market Reaction: Equity markets opened with gains. The yield on 10-Year Treasury bonds is up to 2.65 percent. NYMEX crude oil is up to $104.53/barrel. Natural gas futures are down to $4.61/mmbtu.

Economic Alert 041614

For a PDF version of this Comerica Economic Alert click here: Housing Starts 04-16-14.

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