June housing starts add to evidence of Recovery's Imminence

This morning the Census Bureau reported that Housing Starts increased to 582,000 in June from May's upwardly revised 562,000. Year-over-Year starts are still down (-46.2%).

I'm unable to post graphs at the moment, but Calculated Risk has an excellent one, showing that housing starts are a leading indicator, always borttoming before the end of recessions. Note the recent strong turn-up in our current recession looks like the harbingers of recovery from past recessions.

CR concludes, "It now appears that single family starts might have bottomed in January. However I expect starts to remain at fairly low levels for some time as the excess inventory is worked off." Personally, I would like to see housing starts increase past 600,000 on a seasonally adjusted basis, and (because of strong seasonality) to see improvement in the YoY% decline to (-40%) or less, before I would feel reasonably confident that the bottom in new housing starts has actually been made.

Back in February I noted that new housing sales almost had to make a bottom this year (or else by trend there would be 0 new house starts by early 2010!) Why is a bottom in housing starts crucial? As I said then,

A bottom in housing volume (regardless of prices) is important. I have pointed out in a number of previous posts how real private residential investment turning up -- or at least declines much slower than overall GDP -- is one of the earliest signs of an end to a recession and the beginning of economic expansion. We could see that (relative) upward turn in residential investment as early as later this year.

Much to Gloomsters' dismay, this is yet another sign that economic recovery (in the sense of +GDP growth) may be imminent.



recovery imminence?

NDD while there might be some technical indicators I'd hardly call this rock raving statistics, esp. coupled with 1.5 million foreclosures with a projected 3.2 million in this year (excess inventory).

+GDP growth yeah sure but ya know, what is +1% really?

I mean that looks like a sideways L, |___ , a big muddled yuck, versus getting my 90's on and feeling happy.

Recovery implies growth

and my guess is that we aren't going to see any real sustained growth for quite some time. Once the market accepts the end of the recession, interest rates are going to rally to a point that prevents meaningful expansion. Also, the margin of error on that starts data is over 8%, which makes it pretty useless.

error of 8%

Do you have a reference for that error margin? That is a great addition to EP, error rates on these various stats.

I think most are projecting, NDD is obviously going to the green shoots camp to the point I think he's drinking joy juice, (only in friendly fun NDD!), but most are projecting GDP growth of about 1% to 2.x% in 2010. The grand debate is when this starts, i.e. when it bottoms.

Myself, I'm a layman, so my current hypothesis is there cannot be a real recovery in these so called "jobless" recoveries. Something is serious amiss between international stats vs. national EIs, but that's a hypothesis, not proven.

It's actually 11.3%

I got it from The Big Picture blog. Here is the article:



Here is the housing stats data sheet.

Ok, new housing starts are inside the margin of error. (Ritholtz just did a nice call out IMHO) but the permits and completions are outside the margin of error.

But they do state this is a moving average and even given the time window for the stats to be considered valid.

Helps to read the fine print I guess.

* 90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.
In interpreting changes in the statistics in this release, note that month-to-month changes in seasonally adjusted statistics often show movements which may be irregular. It may take 3 months to establish an underlying trend for building permit authorizations, 4 months for total starts, and 5 months for total completions. The statistics in this release are estimated from sample surveys and are subject to sampling variability as well as nonsampling error including bias and variance from
response, nonreporting, and undercoverage. Estimated relative standard errors of the most recent data are shown in the tables. Whenever a statement such as “2.5
percent (±3.2%) above” appears in the text, this indicates the range (-0.7 to +5.7 percent) in which the actual percent change is likely to have occurred. All ranges
given for percent changes are 90-percent confidence intervals and account only for sampling variability. If a range does not contain zero, the change is statistically
significant. If it does contain zero, the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease. The same policies apply
to the confidence intervals for percent changes shown in the tables. On average, the preliminary seasonally adjusted estimates of total building permits, housing starts
and housing completions are revised about two percent or less. Explanations of confidence intervals and sampling variability can be found on our web site listed

Spin Spin Spin

When you have to go digging for margins of error, and speculate about interest rates in the future, as opposed to adding data to data to data, almost all of which is now nearly shrieking a return to positive GDP growth in the near future, it's time to examine how objectively you are looking at the data vs. letting your ideology get in the way.

As Rob Oak points out downthread, the permits data is outside of the margin of error, so go look for a different spin spin spin on that too.

As for Ritholtz' "take down", relying on raw year-over-year rates of growth or decline (except for seasonality) is a terrific way to completely miss turning points.

Why Rob thinks I am drinking "joy juice" is that the goalposts keep moving to try to rebut the positive data that has been coming in. First it was "It's only the second derivative!" and then it was "It's only stabilization!", and now it's turning into "It's only weak growth!" WAAH! WAAH!! WAAAAAAHHHH!!!!

sorry NDD

but I do not see these stats as positive. We just had more bad unemployment data, record foreclosures, IP & Capacity are still in contraction, consumer sentiment is down, minus oil, retail sales are still down and here's a weird one that I'll call a bell weather, video game market just crashed and burned, down 31%, which is classified as "recession proof" entertainment.

I don't see the love here and don't take it personally, I'm just looking at the stats you are showing plus many others.

I'm not claiming in any way we're still in free fall, on this score I agree, but to imply somehow the world will be all sunshine in a couple of months, I don't think we're looking at the same stats and cycles sometimes.

I don't think I'm moving goalposts at all, I'm looking at the same stats you are and I don't see for example, IP at rock bottom lows, record lows, being a positive statistic.

I mean GDP turns in 2010 or in a couple of months....

With unemployment continuing it's upward slope past estimates, looking to me to hit 11%, not 10% in 2010, I don't see how that is not going to feedback into areas like the housing market and if not keep it this |____ scenario with some variance bouncing around in the trough area to even another joy ride (sic) down the rollercoaster again.

Also, in those housing stats, it says you have to take windows of data, moving averages. I mean seriously with inventories and a nice little padding of 3.2 foreclosed properties, how can this not depress housing prices further?

I love ya NDD but I just don't get the joy fest and of course EP is all about differing views, analysis.

A few items - more spin

1. Did unemployment feed back into areas like housing in 1933 when it was at 25%? (Hint: No!)

2. Consumer sentiment went down in the last 2-4 week measure, true, but that is eactly one data point.

3. Retail sales are NOT negative. Retail sales have been generally stable for the last 3-6 months, and the only way Ritholtz et al were able to spin spin spin the last one negative was to take out cars (the big kahuna of durable retail sales) as well as Oil. Well, yeah, you take out positive retial sales, what you are left with is negative. There is no intellectually honest basis on which you can take out both autos AND oil.

4. IP and capacity are coincident, not leading, indicators and now even those are showing the first signs of bottoming.

And, sorry, but those who have wet dreams of economic Armageddon keep having to move the goal posts to dismiss the data they don't like.

point by point

1. I don't have the stats off hand but my understanding is unemployment did indeed feed into massive foreclosures as did the dust bowl, plus deflationary crash, esp. with ag prices feed into foreclosures on farms. There were literally riots over foreclosures. I also believe FDR put into place programs which would have decoupled that correlation (need to locate) which are not in place now.

2. as I recall upswings on consumer sentiment are also one data point

3. retail sales were negative, when one removes gas, autos, and also within the margin of error. Considering the bankruptcy deals on autos plus the massive auto sales cliff freefall previously....

Sales at retailers rose 0.6 percent from May, more than forecast and the biggest gain since January, Commerce Department figures showed today in Washington. Excluding autos and gas, purchases dropped for a fourth consecutive month

4. IP & Capacity are in contraction, that's not a "bottom", it's a contraction. Free fall has stopped but they are at record lows, capacity utilization at an unbelievable 68 stats. That's not a "bottom" that's a less slope than last month, that's not stabilization, that's "less horrific than last month".

Since when have I jumped on the Economic Armageddon bus? I've always been on the long, slow decline to 3rd world status joy ride.

I'm really saying the bottom of a cliff one still can bounce around but a bottom of a cliff is a bottom of a cliff not a new hill as if the plateau at the top of the cliff never existed.


1. We know all those things happened during 1929-32. We don't have much monthly or even quarterly data, so it is tough to know which led which. We do know that at the bottom in 1933, unemployment was 25% and yet nonfarm housing starts grew about 25% from their 1933 bottom to 1934.

2. Consumer sentiment has been on an upswing for 3-4 months. The last single reading went down.

3. And exactly why should we remove gas AND autos? Give me an intellectually honest reason for removing both. That is telltale evidence of spin.

4. Recovery is likely to start very very soon (in terms of +GDP growth). It hasn't already started, which is why June coincident indicators like IP and capacity are still going downhill.

I said why on autos

due to the fire sale, dealers shut down having to "sell" their inventories to other dealers, i.e. the bankruptcies, and the other is look at margin of error.

On housing, we have in '33 the HOLC, a host of freezes on foreclosures, so ya know this just makes sense to me, no job, no money to make housing payment, oops, foreclosure unless one has a major government intervention, which they did.

I'm going to write up a post on GDP specifically which is those hidden "globalization" stats but we'll see, as is. I do expect GDP to increase, but when I don't really know frankly, but with manufacturing stats where they are....I feel it's more towards 2010 than right now. but still, with 1% GDP growth I just don't see that as a huge let's pull out the yea, rah, rah, esp. with increases in population and so on. What's the total decline now? 6%?

at this point I want to comment generally

I see almost a war brewing between the green shoots and the brown weeds analysis camps.

One thing I find fairly awesome on EP is just how many people use data, charts, analysis in their posts.

So, I hope all are respectful and just debate the data....

cause it would be god awful it the focus was on "positions" as if we're in some tug o war.

BTW: I will officially declare myself a member of the green weeds, brown shoots camp.

Is there a third alternative?

Green shoots or Green weeds. I could see positive growth possibly 2% for a long time but certainly not enough generate jobs or sustain an economy or middle class.

Income inequality + financialization + globalization = financial crisis all over again

Call me the "Cautious Gardener"

Green weeds, green shoots, brown grass, whatever it is, I think the third or perhaps (in this writer's opinion) best position would be the "Cautious Gardener". Yes, the economy is showing signs not of growth but a slowing of the decline. Or if you still want to stick to those damn agricultural examples, the ground is starting to show moisture in the topsoil but you still have many arid areas in the field. Perhaps in the next rainfall, the top soil will be able to hold and the seedlings will be able to take root. We on this farm are surprised and happy to see this, but unless the next rainfall comes, the drought remains.



Film Recommendation: Being There

all of this analogy talk is making me think we should promote Chauncey Gardiner as head EP economist.


I remember this movie. Wasn't it one of Sellers' last films? You know, seeing one of my last comments, I sounded like Chance. LOL. Makes you wonder, though, because this film really wasn't all that off, given the past 30 years of American politics. Know what I mean?



new poll, see bottom left

Not only is the film (book), "Being There" roll on the floor funny, it has multiple layers of social commentary. But there is a scene where Chauncey Gardiner is interviewed on The Tonight Show and is considered a guru for economic predictions. Chauncey Gardiner is an imbecile, but talks about gardening, which is all he knows, but the audience takes his speech on seasonal planting to be a metaphor for business cycles.

Not gloomy

I am hardly a doom and gloomer, but I just do not see a real recovery in the offing. I tend to agree that GDP will turn positive at some point this year, but that does not imply a recovery.

What I am trying to say

is there is a big difference between the recession ending (which it will soon) and the economy recovering (which it won't soon).

Krugman implying sideways economy in new post

Beware of the Bounce.

Most interesting he uses chief economist from GS and since we know GS is running the country....