Housing Data Stronger than Expected: Starts +12%

Mark Vickery

Wednesday, September 18, 2019

New Housing Starts and Building Permits data has been released for the month of August this morning before the bell, with results coming in better than expected for both sides of this particular coin. Housing Starts last month grew 12% to 1.264 million seasonally adjusted, annualized units, well in front of the 4.1% growth expected and 1.260 million units in the consensus estimate.

Starts were also revised higher for July, from 1.191 million originally reported to 1.2125 million this morning. This result makes the 12% increase in August Starts all the more impressive. Housing Starts have now risen to a 12-year high.

Building Permits rose 7.5% from the 1.30 million expected to 1.364 seasonally adjusted, annualized units last month. It was also better than the initially reported 1.317 million that came out for July last month.

Anytime we see growth like this in the very important housing market is very good for the overall economy. After all, it’s not just mortgage-lending banks who make out well — it’s construction workers, lumber and pipes suppliers, window installers, and the like. Back during the Great Recession, economists paid close attention to two very important metrics: new jobs and new ground-breaking for housing. Needless to say, we’ve come a long way and still look strong on both fronts.

Which brings us to the ongoing Fed meeting which started yesterday and concludes today with a press conference with Fed Chair Jay Powell. It’s a virtual lock that the Fed will once again lower interest rates — from 2.00-2.25% currently to 1.75-2.00%. This would mark the lowest Fed funds rate in a year.

The question is: With so many economic reads demonstrating such solid growth, what’s the urgency with cutting interest rates? After all, this is usually a tool for the Fed to utilize when the economy is not firing on all cylinders and needs a boost of liquidity to unlock wealth and help transform and improve its usage.

The answer is: The Fed has switched its philosophy from being “data driven” to “preemptive.” Meaning that while Fed activity, going back three Fed Chairs over the past decade and a half, had normally waited for data to cross the tape in order to adjust and react accordingly. Nowadays, with the U.S. economy humming on most econ reads, the reason for cutting rates has more to do with not leaving the rest of the lagging global economy in the dust.

The U.S. does not wish to get too expensive to do business with as the Eurozone, etc. work their way out of recessionary periods of their own. Much of the global economic headwinds stem from the U.S.-China trade war and, comforting sound bytes from administration officials on both sides of the Pacific notwithstanding, this standoff is not likely to be resolved in the near term. Thus, as global trade slogs, the U.S. wishes to dial back making the dollar more expensive. Hence, the new rate cut.

How Chairman Powell talks about the future beyond today’s cut will be of paramount importance. Will this be a one-off, so that the U.S. can keep what remains of its interest rate powder dry in case of worse global conditions that may bring a recession to our shores, as well? Or is this part of a planned easing “dot plot,” whereby a new methodology of easing rates will continue through the remainder of 2019 and beyond?

Mark Vickery
Senior Editor

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