Today the Commerce Department's Bureau of the Census released its July report on Housing Starts and Building Permits.

From June to July, housing unit starts were down by 1 (+/-6) percent, with single-family housing starts down 6 (+/-5) percent. As usual, the sampling uncertainties for the month-to-month changes were so high that they completely obscured the significance of the underlying data. But, as usual, if we look at the statistics over a longer period of time, we can extract some useful information. Looking at the year-to-date figures we find that, during the first seven months of 1996, 865,300 housing units were started. This compares with 769,700 units during the same period last year. This is an increase of 12 (+/-1) percent. Thus, during the first seven months of 1996, the housing market was definitely stronger than it was during the same period last year.

We can get a shorter-term handle on the housing unit startup situation if we look at the building permits data. The uncertainties in the month-to-month permits data are considerably less than they are for starts. Because of this reliability, and because permits are the earliest indication of activity in the economically-sensitive housing industry, the Department of Commerce has included permits in its list of 11 indicators that make up the Composite Index of Leading Economic Indicators (LEI).

From June to July, building permits grew by 3 (+/-1) percent. So, at first blush, it might look like the housing sector is on the verge of a turn to the upside. But, when we dig a little deeper into today's report, we discover that from June to July authorizations for new single-family homes (which account for approximately 3/4 of all new housing structures) were virtually unchanged -- down 1 (+/-1) percent. By way of contrast, authorizations for housing structures with more than five units (apartment buildings) rose by 17 percent from June to July. So, today's report on permits is consistent with yesterday's National Association of Home Builders report on prospective-buyer traffic and current sales. In other words, fewer families are in the market for a new home. The generally accepted explanation for this is the rise in long-term interest rates since the first of the year.

In other news today, it was revealed that the University of Michigan's initial estimate of its consumer sentiment index for August dropped slightly to 94.5 from a July reading of 94.7. Last month's reading was the highest for this indicator in the 16 months I have been monitoring it.

Pat Lafferty (MF Merlin)

Transmitted: 8/16/96