A Construction Slowdown Would be Bad News for a Weak U.S. Economy

By Walter Kurtz, Sober Look

Given the recent poor housing starts report, some economists are raising concerns about the sustainability of the positive momentum in residential construction (see figure 1).

The primary explanation for the latest decline seems to be the slowdown in apartment construction.

NAHB: – “While demand for new homes and apartments has grown considerably over the past year, builders are still being very careful not to get ahead of the market, and today’s report reflects that cautious approach,” said Rick Judson, Chairman of the National Association of Home Builders (NAHB) and a home builder from Charlotte, N.C.

“The large dip in multifamily production in June follows a boost of activity in May, and is consistent with the volatility that has come to characterize that sector as well as the uneven pace of the housing recovery,” noted NAHB Chief Economist David Crowe. “That said, the fact that single-family starts and permits both rose in three out of four regions in June is a positive sign that’s in keeping with our forecast as well as recent surveys in which single-family builders have registered an increasingly positive outlook.” The annualized rate of multifamily production declined 26.2 percent to 245,000 units in June after a 28.2 percent gain in the previous month.

Some have also attributed the slowdown to weather conditions.

There is another issue however that nobody wants to discuss. Anecdotal evidence suggests that the sudden rise in interest rates has spooked some developers who decided to cool things down a bit – at least until there is more certainty around rates and economic growth (we’ve seen glimpses of this earlier).

There is no question that construction will resume on its upward path, if for no other reason than demographics. The US population is growing at the rate of roughly 2.3 million per year and construction rates are just not keeping up.

But even a temporary slowdown in construction (particularly if caused by policy uncertainty) is bad news for the US economic growth, which remains fragile.

WSJ: – The weaker-than-expected housing activity could weigh even further on second-quarter growth estimates, which have already dropped below 1%.

BNP Paribas economists on Wednesday said the drop in June housing starts could shave 0.1 percentage point off their forecast of 0.8% annualized growth of gross domestic product in the second quarter.

Housing starts

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Sober Look

Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.

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  • http://www.nowandfutures.com bart

    “WSJ: – The weaker-than-expected housing activity could weigh even further on second-quarter growth estimates, which have already dropped below 1%.”

    The fear trade remains alive it seems.

  • Shorehaven

    Engineering News Record reported last month that unemployment in construction dropped to 10.8%, the lowest since late 2008. Barrons shows construction spending for residential and nonresidential construction has increased between 5 and 10% ytd.

    Unfortunately, spending for public work construction has fallen. Pathetic government- they rather give out welfare to senior citizens and non workers and spend money for overseas wars and drones.