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Strong Housing Data Bodes Well for the Residential Construction Outlook

The Weekly Toplines

• New housing starts rose 3.8%, up to an annualized 1,314,000 units in October. Over the past 12 months, new residential construction has increased 8.5%, with single-family housing starts jumping 8.2% since October 2018. This suggests that homebuyers continue to respond positively to lower mortgage rates, with the overall housing market bouncing back after being in the doldrums over much of the past year. Homebuilder optimism also reflects that positivity.
• Indeed, housing permits rose 5.0% in the latest report, up to 1,461,000 units at the annual rate in October, the fastest pace since May 2007. The headline number was buoyed by strong growth in single-family permitting, up to 909,000 units, a rate not seen since August 2007. Overall, new residential construction permits have soared 14.1% year-over-year, which should signal healthy growth for the housing sector moving forward.
• Existing home sales rose 1.9% to an annualized 5.46 million units in October, with single-family activity up 2.1% for the month. Sales have risen a healthy 4.6% over the past 12 months. National Association of Realtors Chief Economist Lawrence Yun anticipates sales continuing to rise in the coming months, especially with lower mortgage rates and strong income growth. 
• The IHS Markit Flash U.S. Manufacturing PMI improved in November for the third consecutive month to the best reading since April, led by stronger expansions for new orders, output, employment and exports. Along those lines, manufacturing activity in the Philadelphia Federal Reserve Bank’s district expanded for the ninth straight month, with respondents very positive in their outlook for the next six months.
• In contrast, the Kansas City Fed’s manufacturing survey contracted for the fifth consecutive month in November, reflecting weaknesses in the sector and the sample comments citing frustrations about trade uncertainties and the continuing challenges with finding talent.
• Meanwhile, the IHS Markit Flash Eurozone Manufacturing PMI also improved, rising from 45.9 in October to 46.6 in November, a three-month high. The index for future output increased to the best reading since June (55.0), with cautious optimism for growth in production over the next six months. With that said, it was the 10th consecutive monthly contraction in European manufacturing activity, led by Germany, which has seen declines in every month so far this year.
• The Index of Consumer Sentiment improved for the third straight month, according to the University of Michigan and Thomson Reuters. Moreover, the headline measure rose from 95.5 in October to 96.8 in November, which was well above the preliminary estimate of 95.7. Americans felt more upbeat about their outlook for the coming months, but this was offset somewhat by a weaker assessment of the current economy, with respondents citing political and trade uncertainties.