NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: January Housing Starts
KEY DATA: Starts: +2.8%; 1-Family: +1.5%; Permits: -4.9%; 1-Family: +0.4%
 
IN A NUTSHELL:  “The housing sector continues its slow and steady improvement.”

WHAT IT MEANS: The beast that ate the economy has been tamed and is now feeding nicely.  Home construction rebounded from a likely weather-restrained December to post a solid gain in January.  The biggest rise was in multi-family activity as single-family building starts improved only modestly.  Still, compared to the catastrophic levels of last January, we are looking at double-digit gains in both segments.  Regionally, the Northeast led the way followed closely by a strong increase in the West.  Activity in the West had cratered last year and it appears that the recovery is starting in that part of the country as well. The Midwest was off somewhat and the South had a modest rise.  Looking forward, permit requests did ease but that is nothing to be concerned about. The level of permits has gotten a little ahead of actually construction activity so I expect builders to wait a little before requesting more permits. 
                                                                                                             
MARKETS AND FED POLICY IMPLICATIONS: This was a very solid report that confirms that housing is now a growing part of the economy.  That said, home construction can be greatly impacted by Mother Nature.  Given the simply awful weather in February, don’t be surprised or distressed if both permits and starts are off.  It’s tough to do much when you have to deal with two or more feet of snow and bitter cold weather.  But I would expect there will a bounce back in March. With manufacturing output on the rise and residential construction improving, I think we can assume that the upturn is in place.  How strong is another question, as it still needs to get a bigger kick from consumers and businesses.  This being the one year anniversary of the stimulus bill, it is worthwhile remembering that a significant proportion of the money is still to be spent and much of that is for the not so shovel ready projects that never got under way.   Thus, investors should feel reasonably good about their prospects.  As for the Fed, the good economic data are sure to sharpen the debate about when to start the tightening process.

FROM: CHRISTOPHER J. BROWN, PRESIDENT

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