Production and Construction Pick Up
The last couple of days have brought us more news to support the notion of a solid, if unspectacular, recovery being well underway. Both industrial production and, more particularly, new home construction support a slightly optimistic outlook by growing more rapidly than forecast. So they’re worth noting.
Yesterday we learned that industrial production which had taken quite a hit in August recovered decently in September, growing at a 0.4% rate compared with the the revised drop in August of 1.4%. Both these figures need to be treated with a little skepticism. The August number was deeply depressed by the temporary closure of oil production facilities as oil companies hunkered down to weather a hurricane. Likewise, September’s uptick includes partial re-opening of those same facilities. But setting that oddity aside we still see an increase in production in September, which suggests that the mid-summer faltering in the economy is past us at least for now.
Today’s housing starts news is, to say the least, startling. September’s starts were at a rate of 872,000, reaching a four year high. That’s 15% up from August’s 758,000. Single family home starts rose 11%, and multi-unit homes starts rose 24%. The latter is very volatile and so is less of a reliable indicator of the overall construction trend, so we ought focus more on the single family starts figure as a proxy for the outlook in real estate.
Even more importantly for the outlook, permits issued for new construction also shot up to a four year high rising to 894,000, which is an increase of 11.6%.
Taking this new housing data along with the recent firming in prices, and we can now detect a distinct and sustained recovery in real estate. The early year wobbles are well behind us and construction is, at last, on a solid footing, albeit well below its bubble driven peaks. If this keeps up it augurs well for both GDP and employment as a steady trickle of new construction jobs helps re-absorb people back into the workforce.
Naturally we need to exercise caution with this good news. There are still major issues out ahead, most notably the possible self-inflicted disaster of unnecessary fiscal retrenchment as Congress tries to thrash out its ideological differences and come up with a semblance of a budget plan. If, as is quite possible, the result of the negotiations later this year end up with a botched austerity package along the lines of the awful Simpson-Bowles proposal, we can expect GDP to take a hit in 2013. It may even slide into recession. The threat is real, and not without precedent. The Great Depression was prolonged for years by ill-informed policy making, and we appear intent on making those same errors.
In which case today’s burst of optimism will have been a short lived reprieve rather than being indicative of a long term cure.
Let’s hope not.
