First and foremost, this robust housing starts print will be revised lower. In this cycle, we have had many times where a super positive or negative print gets revised higher or lower. This is why rule number 1 with housing starts and new home sales data; you always ignore the big print headlines but follow the 3-month average trend.
Second, this has been a horrific week for the American bears, one for the Jedi Archives.
I am sorry, I wasn’t a good enough teacher to change your mind. I take full responsibility for this. I wrote this for you guys back in October (Repo/Inversion Recession man) was still too early.
“Recession Red Flag Update”
https://loganmohtashami.com/2019/10/15/recession-flag-watch-update/?
Jobless Claims, Housing Starts, Philly Fed, JOLTS, and Retail Sales all point to an expansion in 2020, not a recession. Remember, the slowing rate of growth doesn’t mean a recession, folks. Always have a diverse economic model for your recession thesis, so you don’t get timestamped. Yes, the market is short term overbought, but that can’t be your recession thesis going out this year.
Housing starts:
Single-family starts basically ended 2019 flat for the year, while total starts are up 3.2% year to date. The excess housing supply that was created in 2018 is all gone now. As long as the 10-year yield stays away from 2.62% and higher, we should be ok for housing. Just remember, don’t overhype this data, slow and steady wins this race.
From Calculated Risk:
https://www.calculatedriskblog.com/2020/01/housing-starts-increased-to-1608.html
Housing permits did fall but are more in line with what is going on now,
From Fred:
https://fred.stlouisfed.org/series/PERMIT
From Census:
https://www.census.gov/construction/nrc/pdf/newresconst.pdf
Building Permits
Privately‐owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 1,416,000. This is 3.9 percent (±1.6 percent) below the revised November rate of 1,474,000 but is 5.8 percent (±1.1 percent) above the December 2018 rate of 1,339,000. Single‐family authorizations in December were at a rate of 916,000; this is 0.5 percent (±1.3 percent)* below the revised November figure of 921,000. Authorizations of units in buildings with five units or more were at a rate of 458,000 in December. An estimated 1,368,800 housing units were authorized by building permits in 2019. This is 3.9 percent (±0.6%) above the 2018 figure of 1,317,900.
Housing Starts
Privately‐owned housing starts in December were at a seasonally adjusted annual rate of 1,608,000. This is 16.9 percent (±12.8 percent) above the revised November estimate of 1,375,000 and is 40.8 percent (±20.5 percent) above the December 2018 rate of 1,142,000. Single‐family housing starts in December were at a rate of 1,055,000; this is 11.2 percent (±10.4 percent) above the revised November figure of 949,000. The December rate for units in buildings with five units or more was 536,000.
Remember that thesis, we don’t have enough labor to build homes ( Sarcasm) No matter what they say, remember it all falls back on demand. We had too much supply in 2019 to really grow single-family starts because demand got weaker and created a supply spike. That has changed, and the data didn’t turn positive recently. It was May 23, 2019, when I cleared the housing market to leave the penalty box, stating that the new home sales report back then was the best in the cycle.
“Best New Home Sales Report Of Cycle”
https://loganmohtashami.com/2019/05/23/best-new-home-sales-report-of-the-cycle/
Slow and steady wins this race. We don’t have an overheating housing cycle in terms of production or new home sales. The sector has legs to walk this year as long as rates stay low.
From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/01/17/new-residential-housing-jump-in-december
As long as monthly supply stays below 6.5 months, we are good.
To continue the horrific week for the American bears.
Retail sales, while working off a low comparison, doesn’t look recessionary. It seems like most economic data, waves up and down with many missed recessionary theories in this cycle.
From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/01/16/retail-sales-up-0-33-in-december
Philly Fed, like most PMI data, has looked softer for sure but never cracked into a general recessionary data line. Remember, we have had 11 Sub 50 ISM prints in this record expansion; not one time was it calling for the U.S. Recession. Look at how bad the Philly Fed gets when we are really in a recession, folks.
From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/01/16/philly-fed-manufacturing-index-up-in-january
Jobless claims, how many people fell on their recession sword calling for a recession off one bad headline jobless claims print. We have formed a bottom in claims for sure, adjust your LEI modeling for this. ( Hint Wink)
From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/01/16/weekly-unemployment-claims-down-10k
Just to add more flavor to this Friday. We have the job opening drama kings and queen again.
Job openings in America are at 6,800,000, let me repeat that my bearish friends, 6,800,000, and this is your hope, this is your oh you better watch out, openings are falling man.
I am pleading with you now, don’t do this again, let openings get back to hires first
We have such a big gap now still that it doesn’t warrant the attention you’re giving it.
From BLS:
https://www.bls.gov/charts/job-openings-and-labor-turnover/opening-hire-seps-level.htm
Back in February of 2017, a lot of bearish American take was that openings were falling, and this is it. The labor market is finally getting weaker. No, that failed baldy I might add. Also, look at how the gap on the moving average is much smaller then than now. Be patient here.
I wrote this article back in October to give you a heads up not to do this again, but you did.
“Everybody Job Openings Are Still Very Healthy, Relax!”
https://loganmohtashami.com/2019/10/09/everybody-job-openings-are-still-very-healthy-relax/
21 straight months of more job openings than unemployed workers in the longest economic and job expansion ever recorded in American history with an aging population that is leaving the workforce each month, and this is what you’re hanging your hopes on for 2020.
Let those pretty blue dots fall more and let the moving average cross the green line first. Or create a model that shows people why we can have a significant job loss recession with openings over hires. That is a fair argument to make. I mean come on guys, the St. Louis Financial Stress Index isn’t even at normal today. We have never had a recession in America when that index is below zero.
From Doug Short
https://www.advisorperspectives.com/dshort/updates/2020/01/17/job-openings-labor-turnover-clues-to-the-business-cycle
Wait for the stress to show up! Zero is normal, we are at a whopping -1.469%
From Fred:
https://fred.stlouisfed.org/series/STLFSI
I am afraid that the bears have been so awful in this cycle that nobody will listen to any bearish economic data. That isn’t the reality of business and economic cycles. There will be a time that my 6 recession flag model will all be raised together, and the conversation will need to be short term cautious about the economy. However, twitter finance has been ruined by these people that it will be difficult to convince people that the economy is going into recession. My wish, just a little bit of discipline and that I don’t look at your tweets with this face.
Have a wonderful holiday weekend everyone
Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his Facebook page https://www.facebook.com/Logan.Mohtashami and is a contributor for HousingWire.