Economic Watch: Consumer Prices Jump, May Push Interest Rates Higher
While the strength of nation’s homebuilding market has eased just a bit, it remains robust. Meanwhile, a measure of consumer prices show it’s approaching a level the Federal Reserve has said it needs to hit in order to raise interest rates.
The Commerce Department reported on Wednesday total housing starts in the U.S. fell 9% in September from the month before, the second straight monthly drop and short of many analysts’ expectations. However, new construction of single family homes, the biggest share of the market, increased 8.1% to its highest level since February. In contrast, new construction on multifamily units dropped a sharp 38%, the largest decline since 2009.
An indicator of future building activity, the number of new home building permits issued, rose 6.3% in September from August, hitting a year-to-date high level. It also improved 8.5% above the level from September 2015, indicating the underlying strength of the new home market.
“The overall unexpected decline leaves housing starts down an annualized 7% in third quarter, although the gross domestic product (GDP) implications are not as negative as the headline suggests, with the decline concentrated in multi-unit starts, while single unit starts, which have a greater impact on GDP growth, posted a modest increase,” said Josh Nye, economist at Royal Bank of Canada Economic Research.
His group is expecting a a slightly greater moderation in homebuilding activity in the current quarter on top of recent weakness in existing home sales, down an annualized 9% in July and August relative to the second quarter.
“Overall, we forecast a 0.3 of a percentage point drag on GDP growth from the residential sector, although strength in consumer spending and improving business and inventory investment are expected to provide more than enough offset,” Nye said. “We are now monitoring GDP growth to pick up to 2.6% in the …Read the rest of this story
