Industrial Production Grew, Housing Starts Chilled: January 15 – 19

Utilities and mining boost industrial production, while housing construction took a step backward in December. Here are the five things we learned from U.S. economic data released during the week ending January 19.

#1Industrial production surges in December, but the advance in manufacturing was far more modest. The Federal Reserve reports manufacturing output grew 0.1 percent on a seasonally adjusted basis during the month, putting it 2.4 percent ahead of December 2016’s manufacturing output. Durable goods production gained 0.3 percent, led by a 2.0 percent jump in motor vehicles output. Production of nondurables slipped 0.1 percent, hurt by a decline in output of petroleum/coal products, chemicals, and plastics/rubber products. Overall industrial production jumped 0.9 percent during December, leaving it up 3.6 percent versus a year earlier and making 2017 the best year for industrial production since 2010. Cold winter weather drove a 5.6 percent bounce in output at utilities while higher gas/oil extraction led to a 1.6 percent advance in mining output.

#2Home construction paused in December. The Census Bureau estimates the seasonally adjusted annualized rate (SAAR) of homes started slumped 8.2 percent during the month to 1.192 million units. With the decline, the housing starts were 6.0 percent below their year-ago pace. Still, 2017 was the best year for housing starts since 2007. Sales dropped during the month in all four Census regions: South (-14.2 percent), Northeast (-4.3 percent), Midwest (-2.2 percent), and West (-0.9 percent). Single-family home starts plummeted 11.8 percent during December to 836,000 units (+3.5 percent versus December 2016). Starts of multifamily units picked up 2.6 percent to 352,000 (nevertheless was 21.6 percent below the pace of a year earlier). The softness in housing starts may be short-lived as the permitting activity remained ahead of the year-ago pace. The SAAR of issued permits edged down 0.1 percent during the month to 1.302 million permits, which was 2.8 percent ahead of the annualized rate of issued permits of a year earlier. Finally, the annualized rate of homes completed during the month gained 2.2 percent to 1.177 million homes, a 7.4 percent gain from December 2016.Housing Starts 1998-2017--011918

#3Homebuilders remained confident in early 2018. The National Association of Home Builders’ Housing Market Index lost two points during January to a seasonally adjusted 72. Even with the decline, this was seven points ahead of the HMI’s year ago mark and the 43rd consecutive month in which the measure of homebuilder sentiment was above a reading of 50 (which means more builders see the market as “good” as opposed as being “poor”). The HMI surged by nine points in the Northeast (62), but lost ground in the Midwest (down seven points to 69), South (off three points to 72), and West (losing a point to 83). Losing one point were measures of single-family home current (79) and expected sales (78). The index tracking the traffic of prospective buyers shed four points to 54. The press release said the HMI’s continued strength is “a sign that housing demand should continue to grow in 2018.”

#4Consumer sentiment eased in early January. The preliminary January reading from the University of Michigan’s Index of Consumer Sentiment was at a seasonally adjusted 94.4, down 1.5 points from December and off 4.1 points from a year earlier. Further should this number hold when updated at the end of the month, it would be the sentiment measure’s lowest reading since last July. The current conditions index lost 4.6 points during the month to a reading of 109.2 (January 2017: 111.3) while the expectations index added a half point to 84.8. The press release noted that “the survey recorded persistent strength in personal finances and buying plans.”

#5The latest Beige Book points to stable economic growth during the final weeks of 2017. The 12 Federal Reserve District Banks indicated that the economy was growing at a “modest to moderate” rate in 11 of those districts and at a “robust” pace in the area served by the Dallas bank. Retailers said that sales were growing, with some respondents saying that the holiday season had beat expectations. The housing market stagnated, however, because of “limited” inventory while auto sales were “mixed.” Employers indicated challenges in finding qualified workers. Nevertheless, wage continued to grow only at a “modest pace,” although business leaders in some districts were expecting wage pressures in the new year. Respondents also noted that inflation was “modest to moderate” with prices building in manufacturing, construction, and transportation inputs in some regions. Comments received by the district banks indicated business leaders were “optimistic” about 2018 economic prospects. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 13, 2018, First-Time Claims, seasonally adjusted): 220,000 (-41,000 vs. previous week; -21,000 vs. the same week a year earlier, the lowest count since February 1973). 4-week moving average: 244,500 (-0.7% vs. the same week a year earlier).
Treasury International Capital Flows (November 2017, Change in Net Foreign Purchase of U.S. Securities, not seasonally adjusted): +34.8 billion (vs. October 2017: +$10.5 billion, November 2016: +$20.5 billion).

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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