HOUSING STARTS AND SALES ARE UP
UNEMPLOYMENT TREND IS DOWN

The Commerce Department's Bureau of the Census announced today that privately owned housing starts in April were at a seasonally adjusted annual rate of 1,519,000 -- 6 (+/-7) percent above the revised March rate of 1,435,000, and 19 (+/-7) percent above the April 1995 rate. For the first 4 months of 1996, 449,100 housing units were started versus 386,800 units for the same period last year -- an increase of 16 (+/-3) percent.

As reported here in the past, the month-to-month changes in housing starts numbers have a large percentage uncertainty associated with them due to survey sampling variability. But, as in the past, if we look at the figures over a longer period of time, the relative uncertainties decline. This is particularly evident in this month's reported numbers for the first four months of the year, which showed and increase of 16(+/-3) percent over the same period last year.

Building permit data generally is more precise than the starts data, and it is probably because of this that the Department of Commerce has chosen the permits indicator as one of the eleven elements of its Composite Index of its Leading Economic Indicators (LEI). The seasonally adjusted annual rate of housing units authorized by building permits in April was 1,461,000 -- 3 (+/-2) percent above the revised March rate of 1,415,000. Year-over-year, permits were up 18 (+/-2) percent, and, for the first 4 months of this year, permits rose 15 (+/-1) percent from the same period last year.

In a related story, yesterday the National Association of Home Builders (NAHB) announced that its May Housing Market Index (HMI) rose three points to 63. The move was led by current sales of single-family homes and prospective-buyer traffic at new home sites. This month's HMI reading is the highest in over two years and compares with a reading of only 42 a year ago.

The spurt in recent home sales has been attributed, surprisingly, to recent rises in long-term interest rates. It seems that rate increases, and the possiblility of even further increases, spurred previously-undecided buyers into action. On the other side of the coin, home builders were less optimistic this month about future sales prospects than they were last month -- again because of the recent rises in interest rates.

For most families, the purchase of a home is the largest investment they will ever make. Recent action in the homebuilding/homebuying sector seems to be telling us that an increasing number of families are sufficiently confident about their economic futures to make this substantial long-term commitment -- a sign of underlying strength in the economy.

Perhaps consumer confidence is increasing because, compared with the recent past, fewer people are unemployed. There was a short-term uptick of 12,000 in jobless claims for the week ending May 11. But, the widely-watched, more-smoothly-varying, four-week moving average of jobless claims fell again to 353,000 -- the lowest level in over eight months. And, as of May 11, the four-week moving average was 2.96 percent lower than its level a year earlier -- more signs of economic strength.

Byline: Lafferty (MF Merlin)