Creaky Foundation

Housing starts plunge

A large drop in multi-family housing paved the way for a greater-than-expected 10.8% decline in new home construction last month, while future-looking building permits hit a new low. There are just too many houses still left on the market that are commanding the attention of bargain hunters and those hoping for a steal among the many foreclosures that dot the landscape, diverting attention away from new home builders. If there is a silver lining in the report, and it takes a bit of searching to find one, single-family home starts have been little changed recently, suggesting the new home market is trying to establish a bottom.

Is there anything to smile about?

We did get some relatively good news on the manufacturing front this morning and weekly initial jobless claims fell 53,000 to 610,000, lower than expected. First, let's look at the Philly Fed's take on the environment in the mid-Atlantic region. The survey showed that conditions continue to worsen, albeit at a slower pace, as the closely-followed index rose from -35.0 in March to -24.4 in April. A reading below zero indicates the sector is contracting.

The pricing components show no signs manufacturers have any pricing power, indicating considerable strains remain and core inflation (prices minus food and energy) will probably ease in the coming months. But the data compiled may be starting to signal that the heavy rains pounding the economy are starting to lessen, echoing some of the sentiment from yesterday's Beige Book from the Fed. And the gauge of expectations going out six months rose to the highest level since late 2007! The economy may yet find its way out of the woods.

Wrapping up a busy day, I wanted to briefly touch on the decline in jobless claims. This is one of my favorite indicators of economic activity because it is released weekly, is much more current than most reports, and is a reflection of confidence or lack thereof among businesses.

The drop in weekly claims is welcome and further declines would obviously be gratifiying. It is important to point out, however, that the survey was taken over a holiday period. Though the Labor Department attempts to adjust for seasonal factors, they are usually less than successful accounting for such events. Unfortunately, the decline has to be taken with just a few grains of salt, at least for this week.