Friday, February 16, 2018

Housing permits and industrial production: a brief note

 - by New Deal democrat

I'll take a more detailed look next week once new home sales are reported, but for now a quick update on housing starts and permits.

This month it is pretty simple:  all three metrics I look at -- permits, single family permits, and the three month average of housing starts -- all made new record highs for the expansion.

This is an excellent report.

But haven't interest rates gone up to 4 year highs, you say?  If interest rates are the single biggest determinant in housing, why didn't permits go down?

A similar phenomenon happened after the "taper tantrum" of 2013, and also in the late 1960s as Boomers entered the market. In the first few months after interest rates started to rise, permits and starts rose strongly!  This is probably because potential buyers panicked and decided to "lock in" their purchases before they were priced out of the market.

So I expect several more months of strength, even if higher interest rates persist.  On the other hand, if they do persist, I expect a slowdown in the housing market by about late spring.

Turning to industrial production, I'm not particularly worried about January's decline.  In the first place, it was mainly oil, not manufacturing -- although manufacturing was flat:

Also, in the last few years January has seemed to be a particularly volatile month, due to the vagaries of winter weather.

On the other hand, in my "weekly indictors" column, I have noted the anomalous mixed or negative data from steel and rail (carloads, not intermodal) in the last month or so. While I don't think the coincident tail wags the leading dog, probably that weak weekly data should have provoked more notice as to its implications for production.