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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.

January Housing Starts Disappointing but Not Horrible

January home construction data released today disappointed market expectations. Housing starts declined across the board in January, and there were downward revisions to previous data. Housing permits registered smaller declines, but were still lower.

All economic series exhibit substantial random fluctuation month-to-month, housing data especially so. With all the data, then, and especially with housing data, one must endeavor to look beyond the monthly swings and discern the underlying trends.

As seen in the accompanying chart, trends for single-family housing starts do not look nearly as bleak as today's headlines might suggest. In fact, the trend for single-family housing starts (blue line in chart) still looks to be to the upside, despite all the month-to-month chop (with, yes, January's "chop" to the downside). We would have to see more and sharper declines in February and after before this uptrend is clearly broken. The same can be said for multi-family housing starts (where there is even more month-to-month chop).

Keep in mind, we say this as a group looking for a break in the housing uptrend this year. Our own view is that starts have gotten ahead of sales (blue line well above green line in the chart) and that there is more of an inventory overhang in housing than realtors and homebuilders concede. Home inventories have been rising throughout the past year, supporting our conclusion that starts have gotten ahead of sales.

We think housing will go flat this year, and that is a factor driving our below-consensus 2016 GDP outlook. Having said that, flat homebuilding activity is not declining homebuilding, and slower growth is not recession. More to the point, we can’t even fairly conclude from today's numbers that our flat homebuilding view is coming true.

Again, today's data fail to decisively break the uptrend of the past year. So, yes, today's housing data were disappointing from a growth perspective, but they are not horrible news.

Sales and Starts of New, Single-Family Homes
US Economic Growth: Real and Nominal
Source: Census Bureau. As of 31 Jan 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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