Don't let the headline fool you, the housing starts & permits report points to solid strength for the housing sector. Starts came in at a 1.036 million rate in May which is down 11.1 percent from the April rate but the April rate, which was already one for the record books, is now revised higher to 1.165 million for, and this is no misprint, a 22.1 percent gain from March. Sealing matters is another gigantic surge in permits, up 11.8 percent to 1.275 million following a 9.8 percent gain in April. Forecasters will be revising their second-quarter GDP estimates higher following today's report, not to mention their estimates for Thursday's index of leading economic indicators where permits are one of the components.
Permits are the leading indicator in the report and the latest rate is the best since way back in August 2007. The gain is centered in the Northeast followed by the Midwest. Turning to starts, the monthly step back is split between all regions with the Northeast, in contrast to permits, showing the largest percentage decrease.
The housing sector is moving to the top of the economy, just as many suspected following a first quarter that was depressed by heavy weather. Watch tomorrow for descriptions of the housing sector in the FOMC statement and also Janet Yellen's comments at her press conference.
To say housing starts & permits have been swinging wildly would be a big understatement, though lately they've been swinging in the entirely correct direction: straight up. The monthly comparison for the May report is extremely difficult to say the least given April's 20.2 percent surge in starts (no typo) and 10.1 percent surge in permits, which puts the emphasis on the data's trends. For May alone, the Econoday consensus for starts is calling for a 4.0 percent reversal to a 1.090 million rate and a 3.3 percent decline in permits to 1.105 million.