February Residential Construction, Industrial Production

Housing Stops and Industrial Reduction

  • February Housing Starts fell hard by 17.0 percent to an 897,000 unit annual rate.
  • Permits for new residential construction increased in February by 3.0 percent to a 1,092,000 unit pace.
  • The National Association of Home Builders’ Builder Confidence index dropped to 53 in March.
  • Industrial Production gained only 0.1 percent in February as manufacturing output eased.

U.S. economic data is sagging going into the Federal Open Market Committee’s two-day meeting, which began this morning. Residential construction activity was snowed out in February. New housing starts fell by 17.0 percent for the month, with declines in all four Census regions. The Northeast saw the biggest cooldown, with housing starts shrinking by 56.5 percent in February. In the Midwest, starts fell by 37.0 percent. The South was down slightly at -2.5 percent, while starts in the West dipped by 18.2 percent. Losses were shared across single- and multi-family categories. Single-family starts were down 14.9 percent nationwide. Multi-family starts dropped by 21.6 percent. Now for the better news: permits for new construction increased by 3.0 percent in February, indicating that builders plan to resume activity after the big thaw. Single-family permits were a bit weak, easing by 6.2 percent. But multi-family permits roared ahead. Weather was clearly a factor in the weak February residential construction data but that is not the whole story. Sales of new homes have been range-bound for more than two years. We expect to see some moderate improvement in new home sales this spring, supported by robust job growth, and that will provide more incentive for builders.

According to the National Association of Homebuilders, builder confidence slipped in March to an index level of 53.  This is still in positive territory. The drop in builder confidence stems mostly from supply chain issues, including lot availability and labor shortages. Tight underwriting standards are also blamed. Given these complaints, the NAHB survey reads more as a lagging indicator of builder confidence than a leading indicator.

Industrial production registered a weak 0.1 percent increase in February. The small gain was supported by a large 7.3 percent increase in utility output for the month that was driven by the bad weather. Manufacturing output decreased by 0.2 percent in February, consistent with the moderate declining trend in auto sales over the last three months. Likewise, motor vehicle assemblies have dropped in December, January and February. We expect to see a rebound in auto sales in March and April, and this will support strong manufacturing output. Capacity utilization dipped to 78.9 in February.

Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds is down to 2.06 percent. NYMEX crude oil is down to $43.50/barrel. Natural gas futures are up to $2.83/mmbtu.

ALERT03_17_2015_Housing Starts

For a PDF version of this Comerica Economic Alert click here: Housing Starts 031715.

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