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By the Numbers

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

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

Housing Starts up Colossally in October

The data we are receiving this month describe the economy as it was prior to the election. In the last few releases, however, the news has resembled the wild post-election swings in the financial markets. We saw a favorable retail sales number for October on Tuesday, and today’s October housing starts release showed colossal gains. Multi-family housing starts were up 68.8% non-annualized, and single-family starts were up an even more stunning 10.7%.

The multi-family data are exceedingly volatile, so the gains there were not too surprising, especially given that the October gains mostly offset a similarly sharp decline in September. On the single-family housing side, though, the data are generally more stable, so, again, that 10.7% gain was a shocker.

Having said that, we saw a similarly sharp spike in single-family starts in February of this year. That gain was mostly reversed in March, and starts then held generally flat for the next six months. So, today’s October spike may be a harbinger of sustained growth in housing, or it may just be another one-month wonder. Our guess leans toward the latter, but we’ll just have to wait and see.

When single-family starts spiked in February, the gains occurred mostly in the Northeast and Midwest. This made that spike suspect, because these regions are mostly built out, and together, they constitute less than a quarter of US homebuilding activity. The sharp October gains announced today occurred in both the South (up 7.3%) and West (up 21.1%). These regions account for the vast bulk of both homebuilding capacity and homebuilding activity, so the sharp October gains are more credible than those of February. Still, it would be a shock if November starts data did not reverse most of the gains announced today.

For now, though, the news today is clearly at odds with our outlook for flat homebuilding activity. As remarked Tuesday, while the October retail sales report was strong, it didn’t materially alter the narrative of steady but sluggish growth in consumer spending. Unless today’s homebuilding gains are materially reversed next month, however, today’s news does point to a stronger trend for homebuilding than we had been anticipating.

Sales and Starts of New, Single-Family Homes
Sales and Starts of New, Single-Family Homes
Source: Census Bureau. As of 31 Oct 16

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 45 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.

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