Housing Starts Fall Again, Jobless Claims Plunge, Philly Fed Contracts More Than Expected

- Housing Starts for December fell to 1006K versus estimates of 1145K and 1173K in November.

- Building Permits for December fell to 1068K versus estimates of 1135K and 1162K in November.

- Initial Jobless Claims for this week fell to 301K versus estimates of 331K and 322K the prior week.

- Continuing Claims rose to 2751K versus estimates of 2705K and 2685K prior.

- The Philly Fed for January fell to -20.9 versus estimates of -1.0 and -5.7 in December.

BOTTOM LINE: Housing starts were lower than expected in December as homebuilders try to pare down inventory, Bloomberg reported. For all of 2007, housing starts fell 25%. I continue to believe new home construction will remain muted over the intermediate-term as homebuilders continue to work down inventories. With home sales stabilizing over the last three months near mid-1995 levels and mortgage rates plunging recently, I wouldn’t be surprised to see home sales surprise on the upside over the coming months on some pent up demand.

The number of Americans filing first-time claims for unemployment benefits unexpectedly plunged to a three-month low last week, Bloomberg reported. The four-week moving average of claims fell to a two-month low of 328,500, from 340,250 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose back to 2.1% from 2.0% the prior week, which is still a historically low level. With all the housing-related job losses that have already occurred over the last two years, continuing record US exports and the impending retirement of millions of baby-boomers, it is very possible the job market is stabilizing at still healthy levels.

Manufacturing in the Philly region contracted more than expected in January, Bloomberg reported. The New Orders component fell to -15.2 from 12 the prior month. The Inventory component fell to -11.7 from -6.5 the prior month. The Employment component fell to -1.5 from 3.8 in December. The Future Expectations component fell to 5.2 from 11.1. While this number is surprisingly negative, it is important to note that it averaged -15.1 for four months during the 1995 mid-cycle slowdown, hitting a low of -21.0 during that period, and the US economy, which was more dependent on manufacturing then than now, never tipped into recession. I expect this indicator to improve next month on inventory rebuilding.