Housing Starts Continue to Be upbeat, Rising 5.8% – Strongest Since 2006

By | January 26, 2021

Welcome to FTR’s “Monday Morning Coffee “ blog. The following article is designed to keep busy executives up to date with the latest economic data releases. Released every Monday, this blog promises to keep our clientele updated with the latest weekly economic news and developments, highlighting its impact on the transportation, freight, and equipment markets. Hopefully, this will be an informative addition to the fine body of work associated with FTR.

Overview

Global stocks slipped off record highs on Friday as gloomy data reminded investors of the struggles facing the economic recovery, curbing a rally fueled by hopes of a U.S. stimulus by newly inaugurated President Joe Biden. Sentiment in Europe was already cautious after Thursday’s European Central Bank meeting, in which the bank’s message was perceived as more hawkish than expected. The Euro STOXX 600 was 0.8% weaker on Friday after weaker flash PMI readings for January. Lockdown measures to contain the virus hit the region’s dominant service sector. The MSCI world equity index, that tracks equities in 49 countries was 0.2% softer following three straight days of gains. Republicans in the U.S. Congress have indicated they are willing to work with the new president on his administration’s top priority, a $1.9 trillion U.S. stimulus plan, though some are opposed to the plan’s price tag.

The Dow and S&P 500 ended modestly lower on Friday, boosted by losses in the blue-chip technology stalwarts Intel and IBM following their quarterly losses. There were gains in Apple Inc. and Microsoft. The S&P 500 and Nasdaq pared some losses as data showed manufacturing activity surprisingly rose to the highest level in more than thirteen-and-a-half years, in contrast to a disappointing result in the PMI data from Europe earlier. The Dow Jones Industrial Average fell 179.03 points, or 0.57% to 30,996.98, the S&P 500 lost 11.6 points, or 0.3% to 3,841.47 and the Nasdaq Composite added 12.15 points, or 0.09% to 13, 543.06 on Friday. For the week, the S&P rose 1.94%, the Dow added 0.59% and the Nasdaq gained 4.19%. President Joe Biden said on Friday, the U.S. economic crisis is deepening and the government needs to take major action now to help Americans.

U.S. initial claims for unemployment insurance should be taken with a grain of salt as the past several weeks have been distorted by seasonal adjustment issuances around the holidays. New filings dropped by 26,000 to 900,000 in the week ending January 16, better than expected. Initial claims rose by 8,000 in the December-to-January payroll reference weeks. Continuing claims dropped 127,000 to 5.054 million in the week ending January 9, while the insured unemployment rate remained at 3.6%. Those claiming Pandemic Unemployment Assistance increased from 284,886 to 423,734 in the week ending January 16 All told the numbers remain elevated and suggest the labor market continues to struggle in January.

The housing market was the chief economic data last week. Over the course, housing has emerged as the few bright spots in an otherwise bad 2020. Driven by record low mortgage rates and shifting demand for more living space, home sales, starts and builder confidence quickly recovered from the lockdowns in the spring of 2020. With the calendar now in 2021, housing is showing some signs of moderation. Still, most indicators are still running at a robust pace. Existing home sales rose 0.7%. The 6.76 million pace is over 22% above ear earlier levels. Mortgage applications have returned to trending upwards, meaning activity is likely to remain decent for the next few months. Purchase applications increased 2.7% during the week ending January 15 and are up 14.7% above a year earlier.

Housing starts continue to be upbeat, rising 5.8% to 1.67 million—unit pace in December, the strongest since 2006. Pace is powered by the single-family market, up 27.8% over the year. The multi-family sector seems to be cooling, declining 13.6% in December and down 38.7% for the year. Overall, housing will remain at the fore-front of the recovery. However, the labor market is still weak. New filings for unemployment benefits fell the week ending January 16 but remain highly elevated. Another negative month for employment growth in January remains well into the realm of probability.

Next week, we get a look at durable goods orders and the first look at fourth quarter GDP advance trade in goods, new home sales, leading economic indicators and personal income and outlays.

Latest Data

The U.S. Economy:

Housing starts remained hot in December increasing 5.8% m/m to a seasonal adjusted annualized pace of 1.669 million units. The increase was largely driven single family starts, which rose 12.0% to an annual pace of 1.338 million. Total starts in December were up 5.2% from a year earlier. Multi-family starts fell 13.6% to 312,000 in December, the first decline since September. Total permits rose 4.5% to an annual pace of 1.635 million, up 17.3% from a year earlier. Single-family permits rose 7.8% to 1.226 million. The multi-family segment came in at 312,000. Total starts and permits were at the best pace since late-2006. For the year, starts came in at 1.38 million starts and single-family construction climbed to 991,200. Housing is a bright spot in an otherwise weak economy. Lean inventories and low interest rates will continue to support activity in 2021, at least in the single-family sector. However, high lumber prices and shortages of labor may present some constraints. We see some moderation in the rapid growth rates in 2021, compared to 2020, but the market may surprise on the up-side. Rates are likely to remain low through 2021.

Existing home sales rose 0.7% in December to 6.76 million units annualized, extending the upbeat trend that started in June. Sales were up 22.2% from a year ago and 72.9% since the May low. Sales of existing single-family homes, rose 0.7% in December, coming in at 6.03 million annualized units. Sales of single-family homes were up 22.8% from a year ago and 68.9% from the May low. Condo/co-op sales posted a 1.4% increase for the month, up 17.7% from the December 2019 level. Total inventories fell 16.4% to 1.07 million, pushing the inventory-to-sales ratio to 1.9, a new low, from 2.3 in November. Total single-family inventories fell 17.6% to 890,000, the lowest on record since the data series began in the 1980s. The median price in December was $309,800, up 12.9% from a year earlier. Low inventories and low mortgage rates will support sales in 2021. The increasing price may slow activity due to affordability issues.

China’s economy picked up speed in the fourth quarter, with growth beating expectations as it ended 2020 in remarkably good shape after a coronavirus-impacted 2020. The country’s economy appears that it will expand in 2021 even as the global pandemic rages unabated. Real GDP grew 2.3% in 2020, the only major country to avoid a contraction. Real GDP expanded 6.5% year-on-year in the fourth quarter, following the third quarter’s 4.9% growth rate. Backed by stricter virus containment measures and policy stimulus, the economy has recovered from the steep 6.8% slump in the first quarter of 2020. Exports grew more than expected in December. Coronavirus disruptions have fueled demand for exports, but consumption has lagged amid fears of a resurgence in the virus. Despite the growth in 2020, growth was the weakest since 1976, the final year of the decade-long Cultural evolution that wrecked the economy.

Important Data Releases This Week

The December advance durable goods orders report will be released on Wednesday, January 27 at 8:30 AM.  While the service sector continues to suffer, manufacturing is rebounding nicely. The dynamic is reflected in the ISM surveys, although actual production data still lags behind year ago levels and pre-pandemic levels. Retail sales have been soft and the advance durable goods report will give insight on how the manufacturing sector is faring. We project orders to advance 1.0% in December, similar to November’s reading.

The first look at Q4-2020 GDP will be released on Thursday, January 28 at 8:30 AM. The third quarter came in at 33.4% annualized rate. That quarter marked the re-opening after the lockdown in the second quarter. The low base effects and the re-opening of the economy were not in play in the fourth quarter, so there was a sharp slowdown. The big question was how much of a slowdown. We know consumers slowed spending and that businesses likely slowed investment in Q4. We project the fourth quarter will come in at 4.2%. A better, or worse report will have implications for growth entering the new year.

The December new home sales report will be released on Thursday, January 28 at 10:00 AM. New home sales have been brisk coming in at 841,000 in November. We project sales will reach 875,000 in December, helped by the warmer-than-normal weather that month.

The December personal income and outlays report will be released on Friday, January 29 at 8:30 AM. Personal income fell 1.1% in November as the first government stimulus program ended. Spending also fell 0.4%. We project income to advance 0.1% in December, but spending is forecast to fall 0.3%.

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About Steve Graham

Steve is one of the premier analysts in the transportation equipment industry. On a monthly basis Steve tracks and analyzes in detail the trailer and heavy-duty truck industry. Aside from following these two sectors he is also instrumental in helping our customers analyze the economy and its impact on transportation and transportation equipment.