Today's Bureau of the Census report on Housing Starts And Building Permits In June presented a mixed picture. Privately owned housing starts picked up in June, after falling off the month before. But, the number of permits for the construction of housing units declined for the second month in a row.

Housing starts in June were at a seasonally adjusted annual rate of 1,480,000. This was 1 (+/-6) percent above the revised May rate. As is often the case with early reports of housing data, the monthly percentage change is swamped by the uncertainty in the measurement of that change. As we have done in the past, we will look at the year-over-year change to get a handle on what has been happening. In the twelve-month period ending in June, housing starts rose by 14 (+/-7) percent. This compares with a yearly change last month of 10(+/-6) percent. Thus, the year-to-year data shows a definite improvement from May to June.

Permits for new residential construction were down by 2 (+/-1) percent from May to June. This followed an identical drop from April to May. On a year-over-year basis, permits are down from the preceding month. In the twelve months ending in May, permits were up by 14 (+/-1) percent. But, the year-over-year change in permits for June dropped to 10(+/-2) percent.

The building permits data is more precise than the starts data and leads the starts data by approximately a month. The Department of Commerce has chosen the permits indicator as one of the eleven elements of its Composite Index of Leading Economic Indicators (LEI).

The housing market is one of the first economic sectors to rise or fall when economic conditions improve or degrade, and housing permits and starts are the earliest indicators of activity in the housing market. Last month, when both starts and permits declined, it looked like the rise in long-term interest rates had slowed down the housing sector and, perhaps, the economy as a whole. After today's news release, this is not as certain. Starts are up but permits are down. Nevertheless, signals in the permits indicator tend to precede signals in the starts data, and the uncertainty in permits data is significantly less than that in the starts data. Based on this, I would still say that a slowdown in the housing sector may be in the offing. As to the economy as a whole, we can look to more broadly-based indicators like the composite indicators of leading and coincident economic indicators for guidance.

Byline: Lafferty (MF Merlin)