The NAHB Housing Market Index for September fell to 65 versus estimates of 67 and a reading of 67 in August. Optimism among US homebuilders was the lowest in more than two years in September as the cost of energy and lumber rose in the aftermath of Hurricane Katrina, Bloomberg said. “The housing market suddenly looks a little less frothy today,” said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi.
Housing Starts for August fell to 2009K versus estimates of 2025K and 2035K in July. Building Permits for August fell to 2124K versus estimates of 2130K and 2171K in July. US housing starts fell 1.3% last month, keeping construction on pace to surpass last year’s total, which was the highest since 1978, Bloomberg reported. Starts fell 5.2% in the Midwest, 4.1% in the Northeast and 6.6% in the South. Starts rose 13% in the West. Construction that was authorized but not yet started rose 5.7% to 238,700 units, which is the most since May 1979. “This number shows that activity is at least leveling off at a high rate,” said James O’Sullivan, a senior economist at UBS Securities.
The FOMC raised the benchmark interest rate 25 basis points to 3.75%. Federal Reserve Policy makers raised the Fed Funds rate for the 11th straight time and signaled they may do so again, saying the US economy faces only a “near-term” setback after Hurricane Katrina, Bloomberg reported. The US economy was “poised to continue growing at a good pace” before the storm, the Fed’s policy statement said. The policy statement also said “core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.” “The bottom line: The strategy of gradually raising interest rates is not over, and unless the economy softens materially, more quarter-point hikes can be expected,” said Lynn Reaser, chief economist of the Investment Strategies Group at Bank of America.
Initial Jobless Claims for last week rose to 432K versus estimates of 450K and an upwardly revised 424K the prior week. Continuing Claims rose to 2666K versus estimates of 2690K and 2578K prior. Workers dislocated by Hurricane Katrina pushed first-time claims for unemployment benefits to the highest in more than two years, Bloomberg reported. About 103,000 claims last week were from people affected by the hurricane. In total, Katrina has been responsible for 214,000 jobless claims so far. The four-week moving-average of claims rose to 376,250 from 347,250 the prior week. The insured employment rate, which tracks the US unemployment rate, rose to 2.1% from 2.0%. “Initial Claims really only went up in places affected by the hurricane,” said Wesley Beal, chief US economist at IDEAglobal.com. “So, the one positive is there’s not a lot of evidence that there’s any weakness that’s developing nationwide.”
Leading Indicators for August fell .2% versus estimates of a .3% fall and a .1% decline in July. The index of leading US economic indicators fell in August for a second straight month as rising gasoline prices sapped consumer confidence. Five of the ten components of the index were actually positive. The declines in consumer confidence and building permits were mainly responsible for the overall decline. “The smaller than expected decline in the index is probably not as bad as the headline would suggest because it was mostly concentrated in consumer sentiment, which may likely bounce back if energy prices stabilize,” said Anthony Chan, senior economist at JPMorgan Asset Management.
BOTTOM LINE: Overall, last week's economic data were modestly negative. Weather held down housing starts to an extent. August was the ninth-wettest month on record in the South and the sixth-wetting in the Central US. Moreover, starts in September will be negatively impacted by Hurricane Katrina. I continue to believe the nationwide housing market is slowing, not plunging, to more healthy and sustainable levels. So far, the US economy appears to be handling the effects of Katrina relatively well. However, a Fed “pause” is still likely before year-end as measures of inflation begin decelerating again over the coming months. I expect jobless claims to make another push higher this week as more Katrina/Rita victims file. September non-farm payrolls will fall substantially from recent levels as a result of the storm. However, payrolls will bounce back over the ensuing months as rebuilding begins in earnest. A rebound in consumer sentiment and increasing building permits should help boost the Leading Indicators during the fourth quarter. Finally, the ECRI Weekly Leading Index fell .30% to 134.30 and is forecasting decelerating healthy US economic growth.
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