By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

Sign up to receive an email as pertinent data are released.

May Housing Starts Show Third Straight Decline

Housing starts dropped by 5.5% in May, marking their third straight decline. The important single-family housing component dropped 3.9%, for a cumulative 9.5% decline from its February high.

The backstory here is that homebuilding has been strong since last October, when starts jumped sharply. While a similar spike in starts in February 2016 was quickly reversed, the October spike was largely sustained for the next six months through April. The May decline announced today pulls starts levels below the prevailing range of recent months.

Our take had been that the late-2016 surge in starts got homebuilders ahead of their market. As you can see in the accompanying chart, sales of new homes never rose enough to validate the higher level of starts, and in accord with this, inventories of new homes have been on the rise ever since October. We take the recent declines in starts as an indication that homebuilders are trimming activity to get supply in better accord with demand and to head off accumulation of unwanted inventories.

Note that there hasn’t been any actual weakness in new-home sales recently. They merely hadn't increased in line with homebuilding activity. So, we are not looking for an ongoing declining trend in residential construction activity, just a reversal of the gains seen since October.

Residential construction has been one of the few segments of the economy boosting GDP growth over the last few quarters. That boost is unlikely to be sustained over the rest of the year.

Early this year, we upgraded our 2017 GDP forecast based on better news out of the manufacturing and homebuilding sectors. Both of those "rebounds" have faded in recent months, and it is now looking as though GDP growth will be sustained in the one-handle range over the rest of the year (though 2Q17 growth will likely be a bit better, as an offset of the especially soft 1Q17 print).

Sales and Starts of New, Single-Family Homes
Sales and Starts of New, Single-Family Homes

Source: Census Bureau. As of 31 May 17

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 40 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive an email as pertinent data are released.

© Western Asset Management Company 2017. This publication is the property of Western Asset Management Company and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. Investments are not guaranteed and you may lose money. This publication is for informational purposes only and reflects the current opinions of Western Asset Management. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset Management may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence. Potential investors in emerging markets should be aware that investment in these markets can involve a higher degree of risk. Any forecast, projection or target is there to provide you with an indication only and is not guaranteed in any way.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered financial instruments dealer whose business is investment advisory or agency business, investment management, and Type II Financial Instruments Dealing business with the registration number KLFB (FID) No. 427, and members of JIAA (membership number 011-01319) and JITA. Western Asset Management Company Limited (“WAMCL”) is authorised and regulated by the Financial Conduct Authority (“FCA”). In the UK this communication is a financial promotion solely intended for professional clients as defined in the FCA Handbook and has been approved by WAMCL.