KEY DATA: Starts: -1.6%; 1-Family: -5.6%; Multi-Family: +6.7%; Permits: -5.2%; 1-Family: -1.2%; Multi-Family: -11%

IN A NUTSHELL:  “The housing sector may not be restraining growth, but it is hardly adding much to it.”

WHAT IT MEANS:  The housing sector is neither too hot nor too cold.  But that doesn’t make it just right.  Activity is improving, but in fits and starts – pardon the pun.  Construction activity eased in November but that came after an upward revision to the October housing starts numbers.  That had come in as a decline but is now put at a modest rise.  The issue in November was single-family construction, which was off sharply.  This component is bouncing around but the trend has been upward, even if it is not a steep slope.  The multi-family number rose sharply, but large changes is usual for this very volatile number.  So far this year, housing starts are up over 8% compared to the first eleven months of 2013, so it is hard to complain about the housing sector.  Looking forward, permit requests were off but again, the multi-family segment drove the rise.  Permits are running only a little above starts for the last two months and that points to minimal gains in construction activity in the coming months.  

MARKETS AND FED POLICY IMPLICATIONS: So far this quarter, starts are up at a little less than 3% annualized pace from the third quarter.  It looks like housing could add to growth again, but unless there is a lot more activity in December, any addition will be relatively modest.  Nevertheless, I will take it.  With oil prices plummeting, there is every reason to expect that consumer spending will be strong this quarter.  Indeed, my forecast calls for another quarter of GDP growth in excess of 3.5%, which would make it five out of the last six.  Yesterday’s November industrial production number was really strong.  So far this quarter, manufacturing output is growing at a robust 4.4% annualized pace and that could rise with any decent increase in December.   Job gains have been strong and we got our first glimpse at solidly rising wages.  Yes, Europe and Japan are worries and some countries are being battered by the low price of oil.  In spite of that, the U.S. economy is on an accelerating growth path that should continue for quite some time.  We don’t need a robust housing market to drive growth.  There are other sectors, including consumer spending and non-energy investing that should be strong enough to keep the economy moving forward solidly.  So why are investors so negative?  Remember, Wall Street and Main Street are so totally disconnected that we cannot go directly from the economic data to market performance.  Declining oil prices may be wonderful for the macro economy but if it hurts certain members of a stock index, then you get a decline.  Ultimately, when it is clear how much additional growth and earnings we will get from an extended period of low energy costs, the markets should reflect that reality.  And that is what I expect the Fed to talk about when the FOMC statement is released tomorrow.

KEY DATA: Starts: -2.8%; 1-Family: +4.2%; Multi-Family: -15.4%; Permits: +4.8%

IN A NUTSHELL:   “Home building is holding in and with permits rising, it looks like additional construction could be on the way.”

WHAT IT MEANS:  Builders have become quite optimistic, but the real question is: Are they translating that good feeling in action?  In October, at least, that just didn’t happen in all segments of the market.  Housing starts fell, but that was due to a huge drop in the very volatile multi-family segment.  That is not that unusual.  Single-family construction rose to its second-highest level since spring, 2008.  Of course, the housing bubble had already burst by then, but at least we are moving forward.  We still have a long way to go, though, before we get back to solid levels.  Still, so far this year, starts are up by nearly 10% compared to the first ten months of 2013.  In any event, permit requests are running a little ahead of starts causing the number of units permitted but not started to jump.  That permit excess implies that building activity should start ramping up in those areas not covered with snow or ice.

MARKETS AND FED POLICY IMPLICATIONS: The jump in the National Association of Home Builders index signaled growing confidence in the housing sector and low rates are leading to growing mortgage applications, so it is just a matter of time before builders start putting more shovels in the ground.  That permit request are outpacing starts just reinforces that view because builders stopped speculating a long time ago.  That doesn’t necessarily mean we will a large increase in November.  The massive snowstorms and deep freeze will probably temporarily slow things down.  But housing is moving forward and that is what is important.  For the Fed members, this type of report allows everyone to sit around and do nothing.  The starts numbers are neither weak, nor strong, nor not even just right.  They are just another sign of an economy that has yet to truly break out to the upside.  As for investors, I guess if you don’t set a new record on any given day, it is a disappointment so maybe record setting is the key driving force.  It cannot be that the U.S. economy is so strong and the world economy is looking so good that happy days are here again.

KEY DATA: Starts: +6.5%; 1-Family: +1.1%; Permits: +1.5%; 1-Family: -0.5%

IN A NUTSHELL:   “Builders keep putting those shovels in the ground and that is another sign that what happens on Wall Street probably just happens only on Wall Street.”

WHAT IT MEANS:  The roller coaster that has been the equity markets may continue, but since Wall Street and Main Street are so delinked, we need to remember, “it’s the economy, stupid”.  Where would we be if we didn’t have James Carville?  Anyway, the latest indicator of economic activity, housing starts and permits, showed that the housing sector continues to improve.  Starts rose solidly in September, driven by a large jump in multi-family activity.  As boomers and millenials look to higher density housing, this segment is likely to be the key driving force for the sector for a while.  The larger single-family component was up as well.  Permit requests rose modestly as well and are in line with starts, so builders are no longer getting ahead themselves.  Will the increase in construction continue?  Housing permit requests during the third quarter were only about two percent greater than housing starts, the number of homes permitted but not started has been filtering downward and the number of homes under construction is up almost 20% from September 2013.  All of those indicators point to only modest increases in construction in the next few months.

MARKETS AND FED POLICY IMPLICATIONS: As I noted yesterday, it should not have surprised anyone that a correction in the markets would eventually occur, given how outsized the equity price gains were compared to the increase in economic activity.  When reality was going to set in and the extent of the movement was, of course, unknown.  Otherwise I would be on the beach, not in my office.   But it is hardly bad and how long it will last is beyond my abilities.  I am just an economist, often confused why equity prices move in ways that don’t seem to be supported by the economics.  Regardless, the economy is still growing at a decent pace.  Third quarter housing starts were up about 4% from the second quarter, so housing should add nicely to growth when third quarter GDP comes out on October 30th.   The biggest uncertainty is not housing or the labor market or business investment: It is consumer confidence. ISIL, Ebola and the stock markets are real concerns.  Will confidence decline?  Surprisingly, the Thompson Reuters/University of Michigan’s mid-month reading of confidence went up, as expectations rose.  Wall Street may be Wall Street but the falling cost of filling up the clunker may be dominating perceptions.  That is a positive sign for future growth.