Tags: housing | starts | construction | weakness

Weak Housing Starts in Northeast, West Reflect Looming Weakness

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Tuesday, 20 November 2018 09:34 AM Current | Bio | Archive

The housing sector has been attracting quiet a lot of attention of late. There are constraints on supply from skilled labor shortages, there are also concerns about affordability (mortgage rates) in some areas, and the data has generally been quiet volatile. Housing is not a major market statistic, but in today’s context, investors should take note.

After yesterday, the NAHB-Wells Fargo Housing Market Index slumped to 60 in November from 68 in October and well below market expectations of 67, which was the lowest reading since August of 2016 while the sub index for current single-family home sales fell to 67 from 74.

Housing starts increased 1.5 percent from a month earlier to an annualized rate of 1.23 million in October, following an upwardly revised 5.5 percent drop in September and compared with market expectations of a 1.6 percent rise. Starts rebounded in the Midwest and the South but fell in the Northeast and the West. The underlying figures signal weakness in the construction pipeline.

The broader trend shows some pickup this year, as starts grew by 5.6 percent in the first 10 months of 2018 compared with the same period a year earlier.

Equity Markets Remain Under Pressure

Conflicting signals over the state of play between the United States and China on their trade dispute kept investors on edge everywhere and caused after the declines we saw yesterday in the U.S., equity markets in Asia and Europe experiencing further losses that were still led by technology.

U.S. Treasury yields fell to six-week lows on Monday as stocks fell, boosting demand for low-risk U.S. government debt.

Hopes for a first “real” step to a trade agreement/solution between the U.S. and China at next week’s Group of 20 in Argentina have substantially waned since officials from both countries sparred over the weekend at the Asia-Pacific Economic Cooperation or APEC summit meeting in Papua New Guinea.

As long as the “trade” conflictual situation between the U.S. and China continues, which impacts the whole world, I wouldn’t bet on a durable recovery in equities. I personally would prefer “parking” in U.S. Treasuries.

NY Fed Williams Confirms Fed to Continue its Tightening Path

After Fed Chairman Jerome Powell said last week that a "really strong" U.S. economy is likely to continue growing, but softness in the U.S. housing market and high levels of corporate debt had caught the Fed’s attention, yesterday, NY Fed President Williams gave remarks that implicitly confirmed a December Fed funds rate hike while he followed the tone of some other Fed speakers had suggested that after a “few” hikes in 2019, the Fed might be done for the time being.

The unanswered question for investors is of course “how few is few?”

Anyway, New York Fed President Williams said yesterday: “What we’re going to do over the next FOMC monetary policy meeting, we’re going to do what we’ve been doing as best we can - we’re going to find a ... gradual path of the monetary policy back to a more normal level of interest rates. Rates are still very low. We’ve raised them, but they are still at a very low level. We want to keep this expansion going as long as possible.” He Added: “This is an economy that has lots of unmet needs in the healthcare and education sectors. It is not starved of jobs. The economy goes up and down, that’s just a way of life. Right now, it is good.”

Brexit Saga Goes On

Prime Minister Theresa May is still prime minister of the United Kingdom.

The Governor of the Bank of England Governor Marc Carney gave his backing today to a Brexit deal struck by May and European Union officials because it would help smooth the country's departure from the bloc.

He said: “We have emphasized from the start the importance of having some transition between the current arrangements and the ultimate arrangements. So, we welcome the transition arrangements in the withdrawal agreement ... and take note of the possibility of extending that transition period.”

As this is important for investors to take note of, Carney repeated today his warning not to assume that the Bank of England would respond to a no-deal shock by cutting interest rates, as it did after the Brexit referendum in 2016.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The underlying figures signal weakness in the construction pipeline.
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Tuesday, 20 November 2018 09:34 AM
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