Tuesday’s mixed data on housing and industrial production shows how both sectors remained on a bumpy path as a result of elevated interest rates.
Housing starts dropped by 14.7% to 1.32 million on an annualized rate, the lowest level since last August, while permits, a proxy for future projects, also declined, falling by 4.3% to 1.46 million, according to Commerce Department data released on Tuesday.
The decreases imply that builders were hesitant to invest in new projects. Even for current projects, a slower pace of construction was recorded as both homes under construction and completions dropped on the month.
The data aligned with builders’ sentiment, which has been neutral over the past two months. With inflation data coming in hotter than expected, the Federal Reserve might push rate cuts further away, dampening demand for housing. As a result, builders are slowing their activities.
In a separate report from the Federal Reserve on Tuesday, industrial production rebounded in March for the second straight month, rising by 0.4%, yet only to pare some of the sharp drop in January.
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The industrial production index has hovered around the record high for about a year and a half as a result of the Fed’s rate hike campaign.
While the future looks much better for the sector with the government’s vigorous industrial policy leading to a wave of new factories, it will take a couple of years for the sector to reach new highs in our estimate.
In the short term, the improvement in industrial production over the past two months is encouraging news for gross domestic product for the first quarter, which should get a sizable upgrade especially after the recent strong retail sales data.
There is the chance that growth could top 3% when the data is released next week, higher than what the market is currently predicting at 2.0%.
Inside the housing data, starts and permits dropped for both single-family homes and multifamily homes.
Manufacturing and utilities drove the increase in industrial production, rising by 0.5% and 2% respectively. In terms of market groups, consumer goods and electronics showed healthy gains, increasing by 1.2% and 1.4%, respectively.
