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June 2018 Residential Building Headlines Bad


The June data for residential building (permits, starts and completions) was not good.

Some are saying the US has passed the cycle peak for residential buildings.

I think it is too early to say for sure.

The headline residential building permits slowed and construction completions slowed relative to last month. But we keep our eyes on the rolling averages which told us this was a weaker report than last month. The data this month was well under forecasts.

The backward revisions this month were insignificant.The nature of this industry normally has large variations from month to month (mostly due to weather) so the rolling averages are the best way to view this series - and it shows permits rate of growth slowing and completions rate of growth unchanged.

We consider this a weaker report relative to last month - but the rolling averages still remain about average (to above average) over the last two years.

Looking at residential construction employment, the year-over-year growth of employment has a reasonable correlation with housing starts.

  • The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is -6.3 % this month.
  • Unadjusted Construction completions are less than permits.
  • Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) is +7.1 % (permits) and +8.2 % (construction completions):

3 month Rolling Average for Year-over-Year Growth Unadjusted Data

Building Permits Construction Completions
Current Movement decelerating unchanged

Econintersect Analysis:

  • Unadjusted Building permits growth decelerated 17.0 % month-over-month, and is down 6.3 % year-over-year.
  • Unadjusted Single family building permits is down 0,6 % year-over-year.
  • Unadjusted Construction completions decelerated 4.6 % month-over-month, up 3.2 % year-over-year.

US Census Headlines:

  • building permits down 2.2 % month-over-month, down 3.0 % year-over-year
  • construction completions up 0.0 % month-over-month, up 12.2 % year-over-year.
  • the market expected (from Nasdaq / Econoday):
Annual Rates Consensus Range Consensus Actual
Housing Starts 1.290 M to 1.350 M 1.320 M 1,173 M
Housing Permits 1.300 M to 1.360 M 1.333 M 1.273 M

Note that Econintersect analysis herein is based on UNADJUSTED data - not the headline seasonally adjusted data.

When more building permits are issued than residences completed - the industry is expanding - and this expansion was underway for three years (except for the last two months in 2014). In the graph below, any value above zero shows more permits are being issued than completions.

Difference Between New Home Building Permits and Construction Completions (unadjusted)

Although the data is noisy - the trends vary depending on the periods selected.

Many pundits are predicting we have just passed the cycle peak for residential building. We may have but the data will only confirm this years from now. For now, the rolling averages remain in the bounds we have seen over the last two years.

Other Economic News this Week:

The Econintersect Economic Index for July 2018 improvement cycle continues and remains well into territory associated with normal expansions - although this month it forecasts slightly weaker growth. There are continuing warning signs of consumer over-consumption, but the relationship between retail sales and employment improved.

Please visit our landing page for a summary of all of our analysis over the last two years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.