Echo

Housing starts surprised the consensus!

Tuesday, March 17, 2009

It seems like some of the economic reports are looking slightly-less foreboding these days, suggesting that the rate of aggregate decline is probably falling. Today, the Census Bureau released February's report on new residential construction:

Privately-owned housing starts in February 2009 were at a seasonally adjusted annual rate of 583,000. This is 22.2 percent above the revised January 2009 estimate of 477,000.
The February bounce was 130,000 starts better than the level expected by the consensus (you can see the Bloomberg consensus here by clicking on the indicator in question), revealing some upside risk to the gloomy economic outlook if this trend continues.

The chart illustrates the number of total residential housing units started and the number of single-family units started. The 22% monthly bump in housing starts was driven by the first sizable increase in single-family units since 2007 (sizable meaning greater than the single 0.15% monthly in May '08), 1.1%.

However, starts are down sharply, almost 50% since just last year, so take the monthly bump with some grain of salt. Nevertheless, it is good news. The more ominous part of the report shows that housing completions are still way above starts, indicating that construction jobs are likely to be cut in March and April.

The chart illustrates the housing completions minus housing starts and the monthly growth in construction payroll (from the BLS establishment survey). The two series are negatively correlated, -0.53. As completions move farther away from new housing starts, construction payroll declines faster.

Completions are probably still far enough away from new construction to slash more construction jobs in March and April. However, the rate at which the construction payroll declines will probably slow if starts continue to rise and catch up with completions.

Rebecca Wilder

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