U.S. Housing Starts April Rise Due to Multi-Family, Single-Family at 27 Year Low

Housing starts rose unexpectedly during April to 1,032,000 units (AR), an increase of 8.2% following the March decline of 13.8% which was deeper than reported initially. The latest figure was firmer than Consensus expectations for 940,000 starts.

All of the rise in starts last month was due to a 36.0% m/m increase in starts of multi-family units. It recovered nearly all of a March decline that was deeper than reported last month.

Single family starts last month fell 1.7% to 692,000 but the March decline of 2.5% was roughly half the drop reported initially. Nevertheless, single family starts in April were at the lowest level since January of 1991. They have fallen 62.0% since their January 2006 peak. Starts began this quarter 4.6% below the 1Q average.

By region, declines in April starts were spread evenly across the country. In the Northeast single family starts fell 7.2% (-38.5% y/y) to a record low. In the South, single family starts fell 6.6% (-42.9% y/y) to the lowest level since 1991 but in the West single family starts reversed the March decline. Starts rose 8.3% (-43.3% y/y) although they remained down by nearly two-thirds from the August 2005 peak. In the Midwest single family starts rose 5.0% (-40.1% y/y) and they were down 71.0% from the February 2005 peak.

Building permits reversed the March decline. The total rose 4.9% paced by a 4.0% (-40.1% y/y) increase in single-family permits.

Boom and Gloom in the Housing Markets: The Sequel from the Reserve Bank of St. Louis can be found here.

The Federal Response to Home Mortgage Distress: Lessons from the Great Depression, also from the Federal Reserve Bank of St. Louis, is available here.

The preliminary May reading of consumer sentiment from the University of Michigan fell another 5.0% m/m to a level of 59.5. The decline was larger than Consensus expectations for a reading of 62.0. The latest level was the lowest since the brief "credit crunch" recession during 1980.

During the last ten years there has been a 47% correlation between the level of sentiment and the three month change in real consumer spending.

The current conditions index nearly matched its April decline and fell 6.9% to the lowest level since 1981. The view of current conditions for buying large household goods dropped hard again, this month by 6.3% (-34.4% y/y) and the view of current personal finances fell 8.1% (-30.1% y/y).Far fewer respondents indicated that their income was higher.

The expectations component of overall sentiment fell 3.0% after its 11.3% April dive. The index fell to its lowest level since late 1990. Expectations for personal finances fell slightly after a sharp April decline. Expectations for business conditions during the next year fell much more strongly by 12.5% (-63.9% y/y), about the same as during April. Expectations for conditions over the next five years just dipped m/m (-21.3% y/y).

Opinions about government policy, which apparently influence economic expectations, cratered 21.9% m/m (-43.2% y/y). The percentage of those surveyed who indicated that they thought government was doing a good job was stable at 6% but those who thought a poor job was being done shot up to a record 56% from 43% in April.

The mean expected rate of inflation during the next twelve months surged to 7.0% from 5.7% in April, the highest level since 1981.Has the Behavior of Inflation and Long-Term Inflation Expectations Changed? from the Federal Reserve Bank of Kansas City can be found here.

The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver's USECON database, with details in the proprietary UMSCA database.

Yesterday's speech by Fed GovernorFrederic S. Mishkin How Should We Respond to Asset Price Bubbles? can be found here.

European exports fell across the board in March as imports were steady. This plunged the trade balance back into deficit. Sequential growth rates are still upbeat with exports accelerating over 12-mo to 6-mo to 3-mo. But imports are accelerating even faster on this sequence. Over a broader swath of time the Yr/Yr trends show that imports are outpacing exports and that import growth has been firmer while export growth is fading (see chart). Indeed, there is no reason to believe the message in the short-term sequential growth rates since the euro keeps climbing and undermining export growth prospects. Also growth surveys in Europe are getting progressively weaker. We did get a surprise pop in GDP growth in 2008-Q1 – but would you want to take that one to the bank?

Euro- Japan growth figures are less prone to adjust for the extra leap day that we had in the first quarter. Moreover, GDP’s ‘resilience only implies that the effects of the slowdown are being gradually phased in. Weakness in orders and in consumer confidence will lead to weaker economic growth overall in Europe. Sometimes the lag between what the surveys predict and what happens is longer than expected, but the survey message is clear and so widespread it is unlikely to be wrong.

While Germany’s DIW has hiked its growth outlook for German growth in Q2, maybe it should be cutting it instead... Often unexpected strong growth turns out to have borrowed growth from subsequent quarters. One thing it does is to RAISE the level of spending to a point that if spending goes back to trend a downside growth number will emerge in the next quarter – that’s the arithmetic of it. In the case of Germany and Europe I think that sort of a setback – or something even more dramatic-- is a likely outcome in 2008-Q2.