Construction on New Home Increases

Starts on new home construction shot up, while layoffs tumbled, and consumer prices increased.

Housing Starts

Starts on new home construction shot up, while layoffs tumbled, and consumer prices increased. Housing shot up, ending what has been the best year for construction starts since the housing boom year of 2007. Construction starts on housing in December rocketed to an annual rate of 1.226 million, which was 11.3 percent over November’s rate of 1.102 million, and was 5.7 percent higher than December 2015’s rate of 1.160 million, according to last week’s data released by the Census Bureau.

However, it’s important to note that the main growth area for housing was multi-family units. Starts on single-family homes dipped to an annual rate of 795,000 in December, which was 4 percent below November’s rate of 828,000.Meanwhile, starts on buildings with five or more housing units hit a rate of 417,000, which was a whopping 53.9 percent higher than November’s rate of 271,000. The overall thrust from analysts is that the momentum was welcome, but in an inventory-starved housing market, more is needed.

“Despite the modest bump, starts in new housing construction was at its highest since 2007,” Trulia Chief Economist Ralph McLaughlin noted in a public statement. “… When controlling for the number of households in the U.S., housing starts are still only 62 percent of its 50-year average, but this is up from 55 percent last month.”

Initial Jobless Claims

First-time claims for unemployment benefits filed by the newly unemployed during the week ending January 14 tumbled to 234,000, a drop of 15,000 claims from the preceding week’s total of 249,000, the Employment and Training Administration reported last week.

The four-week moving average — considered a more stable gauge of layoff activity — also saw a considerable drop to 246,750 claims, a fall of 10,250 claims from the prior week’s average 257,000.

This is the lowest mark for the average since November 3, 1973’s average of 244,000. This marks the 98th straight week of initial jobless claims falling below 300,000, a mark that economists consider indicative of a growing job market.

“We believe the trend in employment growth remains quite strong — more than strong enough to keep the unemployment rate trending down,” High Frequency Economics Economist Jim O’Sullivan stated in a client note.

Consumer Prices

In line with market expectations, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent during December, the Bureau of Labor Statistics reported last week. Over the past 12 months, the CPI-U increased 2.1 percent. The main drivers for December’s gain were the shelter and gasoline indexes, which rose 0.3 percent and 3 percent, respectively, during the month.

The index for all items minus food and energy — otherwise known as core inflation, because it negates the two items most subject to large, monetary swings — increased 0.2 percent in December, which was the same percentage gain in November. In addition to the shelter index, other key contributors to core inflation increases were prices for motor vehicle insurance, medical care, education, airline fares, used cars and trucks, and new vehicles.

This week, we can expect a light calendar of economic reports, due to the holidays:

  • Tuesday — Existing home sales for December from the National Association of Realtors.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; leading economic indicators for December from The Conference Board; new home sales for December from the Census Bureau.
  • Friday — Advanced fourth quarter GDP from the Bureau of Economic Analysis; durable goods orders for December from the Census Bureau; and January consumer sentiment from the University of Michigan Survey of Consumers.

Written by Summit Mortgage Corporation in Lakewood, Colorado.