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Economy in Brief

U.S. housing starts rose 9.0% in February, as they regained ground lost after a 14.3% decline in January, the Commerce Department reported Tuesday. Housing starts are off 28.5% year-over-year in February. Yet some regions show gains… Increases are concentrated in the South (+18.0%) and West (+26.4%) where milder weather helped recovery from similar declines in the prior month.  The regions we expect to be more afflicted by bad weather show exactly that: the Northeast (-29.7%) and Midwest (-14.4%); there severe cold curtailed new construction.Blaming weather is a common tactic to salvage a forecast gone bad. So the question at hand must be why do we blame weather; what is the evidence? First, as noted above, cold weather affected starts in the regions where weather is coldest (NE and MW). Second, we can point to the obvious indicator of bad weather that the surge in utilities output tipped off in the industrial production report. That result also names weather as a nationally important event.Apart from that, February and March do not emerge as poster perfect months for seasonable weather. Some of the worst of winter’s weather has been back-loaded in 2006/07. This implies that housing may have much more rebound yet to show us.

The overall chart on housing starts only hints at some sort of slowing in the process of housing’s decline (see chart above). But regional data show more clearly that a bottoming process is really in train (see table below). The annualized growth rates show that for the South and the West near term trends have turned up or gone flat compared to earlier trends that show declines still in play. Even over six months the West and South show little tendency to decline or only a small erosion. These are sharp contrasts to the data drawn from the ‘bad weather regions’ of the Northeast and Midwest.  The Midwest shows accelerating weakness - a result I am not really prepared to take at face value even though there is clear potential cause; in the industrial sector that is the core of jobs in that region is really being battered. The Northeast also shows accelerating declines but a milder deceleration is at work there than the Midwest.On balance, as mixed as the regional data are, they display differences that are understandable and logically offer weather up as the explanation. This is another reminder to be careful in taking other data from the period as representative. If weather has had this sort of impact on housing and could distort industrial production, too, its impact on exaggerating weakness might be even more pronounced in reports where attribution of weakness to weather is not so obvious.
Trends In Housing Starts
Feb 2007 % Change at Ann Rate
Regional Trends 3-Mo 6-Mo 1-Yr
Northeast -47.1% -31.3% -27.4%
Midwest -116.3% -73.7% -50.6%
South -0.5% -4.5% -20.3%
West 50.4% 2.0% -30.9%
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