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US economic indicators

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Housing starts (Sep): Moderate upward trend continuing

Mon, Oct 19 2009, 10:26 GMT
by BHF-Bank Economics Department

BHF-Bank

• Leading indicators (Sep): sharply increasing for the sixth consecutive month

• Existing home sales (Sep): temporary uptick because of special tax credit

The NAHB homebuilders’ index has been creeping up since February, but the September level of 19 was still far below the level of 50, above which the positive answers prevail. We expect the NAHB index to have improved slightly to 20 in October.

In line with the upward trend in the NAHB index, housing starts have improved somewhat since spring. We predict that housing starts will have gone up by 3.7% to 6.20m in September, and building permits could have risen by more than 5% mom to 6.10m.

Leading indicators are likely to have gone up significantly for the sixth consecutive month in September, by 0.7% mom. Thus the year-on-year rate will rise to 2.4%, and the annualised 6-month rate could even reach a six-year high of 10.5%. Most components will have had a favourable impact, especially the positive slope of the yield curve, consumer expectations, stock prices and jobless claims. The development of leading indicators suggests that economic growth is picking up noticeably after the severe recession that began at the end of 2007.

The Fed’s Beige Book is likely to state that economic activity has continued to stabilise in September and early October. But consumer spending will have remained soft, and there will have been a noticeable setback in car sales and production after the end of the Car Allowance Rebate System. Further signs of improvement are visible in residential construction, whereas commercial construction is following a steady downward trend. Wage and price pressures will have remained low, as the labour market situation remained weak, although the pace of layoffs is declining somewhat.

After having improved for four consecutive months, existing home sales declined from 5.24m to 5.10m in August. However, as the upward trend in pending home sales has continued, we forecast that existing home sales will have risen markedly to 5.3m in September, boosted by the tax credit rules for firsttime home buyers, which will expire at the end of November.

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Published on  Mon, Oct 19 2009, 10:41 GMT