Housing starts (Sep): Downward correction
Written on October 18, 2010 by Wiley Hayden
The growth in industrial production slowed from 1.0% to 0.2% mom in August, and the indications for September are not very favourable: aggregate weekly hours and manufacturing employment fell slightly and, according to industry figures, utility output could have gone down again, albeit less sharply than in August. However, the ISM production component still indicates solid growth, despite having declined from 59.9 to 56.5. Car production could have risen slightly, after having corrected downwards in August. All in all, we forecast that industrial production will have increased by 0.1% mom in September, and that the capacity utilisation rate will have gone up to 74.8%. This would still be far below the long-term average of a good 80%, however.
The NAHB index of homebuilders’ confidence remained unchanged in September, and we expect it to have remained at 13 for the third consecutive month in October. Sales expectations for the next six months stagnated in September, and the index gauging traffic of prospective buyers edged down one point. Homebuilders’ confidence is muted because of the slowdown in economic growth and the paltry increase in private employment. Thus the NAHB index is far below the threshold of 50, above which more builders view sales conditions as good than poor.
Despite the negative signals from the NAHB index, housing starts surged by more than 10% mom in August. Building permits also improved, albeit only modestly. We predict that housing starts will have dropped from 598k to 580k, but building permits could have approached this level, with another rise from 571k to 575k in September.
In preparation for the FOMC meeting on 3 November, the Beige Book is likely to report that the economic recovery is progressing at a modest speed but that it has not decelerated further. Given the muted growth in private sector employment, wages will not have increased, and the overall inflation outlook will have remained subdued.
In the week ending 9 October, initial jobless claims rose by 13k to 462k. With growth remaining moderate and the labour market showing little sign of improvement, we expect jobless claims to keep oscillating around current levels.
Leading indicators, which had risen by 0.3% mom in August, are likely to have gone up by 0.4% mom in September. As usual, the yield curve will have had the biggest positive impact. Further noticeable contributions will have come from the decrease in jobless claims, higher real M2 and higher stock prices. But there will have been a significant negative contribution from supplier deliveries. The annual rate is likely to have fallen from 6.9% to 6.1%, but the annualised 6-month rate could have declined sharply from 4.1% to 2.0%. This would be the lowest level since the rate turned positive in May 2009.
The Philadelphia Fed index rose from –7.7 to –0.7 in September, and its components were mixed: employment returned into positive territory, but new orders, shipments and inventories slipped even deeper into negative territory than in the previous month. However, as the graph shows, the downward trend in expectations for the next six months has come to a halt. Moreover, the NY Fed’s Empire Manufacturing Index rebounded in October from 4.1 to 15.7. New orders, shipments and employment improved significantly. We therefore predict that the Philadelphia Fed index will have risen slightly to 3.0 in October.
Similar Posts:
- Industrial production (Nov): Moderate increase
- FOMC meeting: No major changes in the statement
- Housing starts (Jul): Slight rise, but still at depressed level
- ISM indices (Dec): Robust expansion levels
- Housing starts (Jan): Weather-related decline
