- by New Deal democrat
Because no data will be released tomorrow due to the Federal holiday, I am going to defer a deeper look at the very important housing sector until then. Today I’ll just note the top line indications from this morning’s housing construction data.
As per usual, permits are much less noisy than starts, and slightly more leading. Single family permits are the least noisy of all the data, so I pay the most attention to that number. And the numbers for May were not good.
Permits (gold) declined -29,000 annualized to 1.393 million, the lowest number since June 2020. Single family permits (red) also declined, by 25,000 annualized, to 898,000, the lowest in 2 years. Starts (light blue) declined -136,000 annualized to 1.256 million, the lowest since May 2020:
Recall that mortgage rates generally lead housing permits and starts, so to some extent this is a function of those rates (blue, left scale in the graph below), which for the last seven months have hovered near the higher end of their range since late 2022:
Some of this may also be a function of Tariff-palooza!, which has caused the price of construction materials to jump (more on that tomorrow). But it is probably also part of a feedback loop, because the number that represents where the proverbial rubber meets the road for actual economic activity - housing units under construction - declined another -29,000 annualized to 1.375 million, the lowest number since June 2021, and -19.8% below their October 2022 high:
More often than not in the past, by the time units under construction had declined by this much, a recession had already begun. The only two exceptions were the late 1980s, where the pre-recession decline was -28.2%, and 2007, where the pre-recession decline was 25.6%.
I will explore more why this time around no recession has begun yet with my more in-depth look at housing tomorrow.
