KEY DATA: Starts: +2%; 1-Family: +4.4%; Permits: -5.7%; 1-Family: +2.1%/ Phila. Fed: +2.5 points; Employees: +8 points/ MAPI: -2 points/ Jobless Claims: up 12,000

IN A NUTSHELL: “While builders are still slow in getting more shovels in the ground, the signs point to a lot more activity in the next few months.”

WHAT IT MEANS: While builders are becoming more positive about conditions, they are not doing that much about it. Housing starts rose in March, but the rise did not unwind the large February decline. First quarter activity was nearly 9% below the fourth quarter 2014 average. That is hardly a surprise given the winter weather. The data were all over the place. Better weather led to a more than doubling of construction in the Northeast and a 31% surge in the Midwest. In contrast, starts fell by nearly 20% in the West and by over 3% in the South. No pattern there. What caused only a limited rise in construction activity was a major downturn in multi-family activity, especially in the West. That is likely the result of normal volatility in the data, implying we really shouldn’t be too worried that starts didn’t rebound more in March. Indeed, there is every reason to believe that the April report will be quite strong. First, single-family construction is not faltering. Second, and more fundamentally, there were roughly 300,000 more permits taken out during the first quarter than there were starts – and almost all of them were for multi-family dwellings. As I always note, builders are not paying for permits for the fun of it. Those permits are going to be used in the spring.

The manufacturing sector took a big hit this winter as both weather and a strong dollar slowed the sector down. The latest data don’t indicate any major improvement. The Philadelphia Fed’s manufacturing survey rose modestly in early April. Firms are hiring a lot more people but how long that will last is uncertain as new orders are growing more slowly. Expectations rose, but minimally. A second survey, one done quarterly by the Manufacturers Alliance for Productivity and Innovation (MAPI), indicated that activity also eased modestly in the first quarter. Despite a rise in current orders, capacity utilization and investment, most other indicators declined. My take away is that conditions moderated but didn’t fall greatly.

Jobless claims rose a touch, but they remain at levels consistent with solid to strong job gains.

MARKETS AND FED POLICY IMPLICATIONS: The headline housing numbers didn’t tell the full story. While construction failed to rebound sharply in March, I would be shocked if the April numbers were not robust. Sharp declines in multi-family starts often are followed by large increases, and the gap between permits and starts in that segment points to that happening. The strong dollar is taking a toll on manufacturing and that is likely to be an issue for a while. But the sector is holding in, even if it is not leading the way. All in all, the first quarter was a disappointment but there is reason to expect conditions to improve as we go forward. But we need data to show that is happening before the Fed does anything.