NAM: Monday Economic Report
New residential construction jumped 12.3 percent, rising from an annualized 1,215,000 units in July to 1,364,000 units in August. That was the strongest month for housing starts since June 2007 and suggests that reduced mortgage rates have had a notable impact. The average rate for a 30-year fixed-rate mortgage was 3.73 percent last week, up from 3.56 percent the prior week, but still notably lower than at the end of last year, according to Freddie Mac.
Over the past 12 months, housing starts have risen 6.6 percent, the highest year-over-year figure since August 2018. Meanwhile, housing permits soared 7.7 percent in the latest report, up from 1,317,000 units at the annual rate in July to 1,419,000 units in August. That was the best reading since May 2007 and suggests that construction should accelerate in the coming months, echoing the homebuilder optimism for solid demand growth.
Existing home sales rose 1.3 percent, up from an annualized 5.42 million units in July to 5.49 million units in August, the best reading since March 2018.
Manufacturing production rebounded in August, up 0.5 percent. It was the third increase in the past four months, providing some encouragement that the sector might be stabilizing despite a challenging year so far. Nonetheless, manufacturers have struggled due to weaker global growth and trade uncertainties over much of the past 12 months, with a decline of 0.4 percent since August 2018, the third negative reading so far in 2019.
For 2019 as a whole, the current forecast is for no growth in manufacturing production, down from an increase of 2.7 percent in 2018.
Manufacturers in the New York and Philadelphia Federal Reserve Bank districts both reported expansions in activity in September, with positive expectations for the next six months. In each of these surveys, respondents were experiencing the fastest paces of input cost growth so far this year.
As expected, the Federal Open Market Committee voted to reduce the federal funds rate by 25 basis points to a range of 1.75 to 2 percent. In doing so, the Federal Reserve hopes to extend the economic expansion, even as it recognizes weaker data on business investment and exports.
There was notable disagreement about the direction of monetary policy. In new economic projections, participants appeared to signal no additional rate cuts for 2019 or 2020. Yet, several individuals felt there could be one more cut in short-term rates this year, and Federal Reserve Chair Jerome Powell noted that incoming data will determine actions moving forward. Given improved housing and production data out last week, I anticipate 2.3 percent growth in real GDP in the third quarter, with a similar rate for 2019 as a whole.