Strong Housing Starts, Consumer Spending

February 19, 2020

 

Overview: Over the past week, stronger than expected economic data caused just a minor reaction, and mortgage rates ended the week nearly unchanged.

The biggest surprise in this week’s economic reports came from the housing sector. Last month, we saw housing starts for December unexpectedly post an enormous increase to the highest reading since 2006. Since outsized gains often quickly reverse, substantial declines from these elevated levels were forecast for January, but the actual drop was much smaller than expected. Building permits, a leading indicator of future construction, also far exceeded expectations in January and reached the best level since March 2007. Given the severe shortage of available homes for sale in many regions, this was very welcome news.

 

Despite big-picture issues such as the coronavirus and upcoming elections, U.S. consumer spending has remained solid. In January, retail sales rose 0.3% from December, the fourth straight month of healthy gains, and were 4.4% higher than a year ago. In addition, the Consumer Sentiment Index, which surveys how people feel about their economic prospects, reached its highest level since March 2018.

 

The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In January, core CPI, which excludes the volatile food and energy components, was 2.3% higher than a year ago, the same annual rate of increase as last month.

 

 

Housing Starts (thousands)

 


Week Ahead 

February 21 — Existing Home Sales report

February 26 — New Home Sales report 

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