Winter storms were again to blame for economic data showing a slowing U.S. economy in January. The latest report from Washington on Wednesday showed that housing starts sunk 16 percent last month, exceeding economist expectations for a decline as ice and snow continue to take a toll on the recovery of the housing market.
The Commerce Department said that starts of single and multi-family homes dropped to an annual rate of 880,000 in January, following a December declining to a revised 1.05 million pace (revised up from an original 990,000 estimate). It was the largest one-month percentage drop in housing starts since February 2011 and put starts at the lowest level since September (873,000). Economists predicted that total starts would fall to an annualized 950,000 rate in January.
Groundbreaking in the Midwest paced the contraction with a fall in starts by a whopping 67.7 percent (155,000 in December to 50,000 in January), representing the biggest month-over-month percentage decline all-time. That would suggest that the inclement weather played a large role in slowing construction in the region.
However, starts in the Northeast, another area hit by frigid temperatures and snow, surged 84,000 in December to 136,000 in January, marking the highest level since August 2008. Starts in the South slipped from 522,000 to 457,000, and starts in the West slid from 287,000 to 237,000.
Starts of single-family homes have contracted in three straight months, from 713,000 in November to 681,000 in December to 573,000 in January. That’s the lowest level since August 2012. Construction on multi-unit structures followed the same path, from 379,000 in November to 344,000 in December to 300,000 in January.
Perhaps of more concern, building permits, a proxy of future building plans, dropped for the fourth consecutive month. Total permits fell by 5.4 percent to an annual rate of 937,000 from 991,000 in December. Permits for single-family homes sunk to 602,000 from 610,000, hitting their lowest level since last March (599,000). Permits for multi-unit projects slumped 12 percent to a 309,000-unit pace.
Wednesday’s report follows Tuesday’s release of the National Association of Home Builders/Wells Fargo Housing Market Index, which measures builders’ confidence for new construction. The index for February plunged 10 points to 46, marking the lowest level since last March. Readings under 50 indicate that more builders view future conditions are poor, as opposed to good. NAHB Chairman Kevin Kelly cited the worse-than-normal weather and builders’ concerns about meeting demand amid a shortage of lots and labor.
Wall Street is simply taking the reports on the housing market in stride, attributing the soft data as a product of frigid conditions and storms. This dismissal of the data could be setting the bar very low from upcoming months, which could be good for the markets, if indeed it is all weather related and not a sign of broader underlying weakness in the markets. With the Fed tapering, mortgage rates rising in 2013 and signs of building slowing at the end of 2013, the housing market doesn’t gain some traction as the weather starts to break, Wall Street could be in for a rude awakening for pointing their finger at Mother Nature.
In morning action, the Dow Jones Industrial Average is ahead by 86 points, the S&P 500 is pushing on record highs with a gain of 6 points and the Nasdaq is essentially even on the day.