4/16/2015
By Jennifer Coombs

It appears that the housing market may be slightly more sluggish than originally expected. In March, housing starts rebounded slightly over last month by 2.0% after dropping by 15.3% in February. Expectations were for a 1.04 million seasonally adjusted annual rate (SAAR), but the actual number came in at 0.926 million, down 2.5% on a year-over-year basis. On a regional basis, home starts gained 114.9% in the Northeast, clearly due to a weather-related rebound in an already small region. The Midwest gained 31.3%, also due to better weather while the South and West both declined by 3.5% and 19.3%, respectively. Housing permits were a little stronger in March but still came up short of expectations. For the month, permits declined 5.75 after gaining 4.0% in February. The SAAR of 1.039 million was up 2.9% over last year but the forecast was still for a pace of 1.085 million. We note that the housing market is sensitive to weather changes, and with warmer weather coming this will translate to more good things to come. However, this latest data is one more data point that will keep the Fed wary on raising interest rates.

As was hinted on April 15th with the Empire State report, the Philadelphia Fed District noted some improvement in its composite reading from March. The Philly Fed index came in at a reading of 7.5 for April versus 5.0 in March, but notes a slowdown in new orders at 0.7 for the lowest monthly growth since May 2013. Backlog orders were also in contraction for the second month in a row, coming in at -7.1. Ultimately, the weakness in orders is being blamed on export weakness, and is very similar to those in the Empire State report, noting a slowdown in manufacturing activity. Shipments for the month are also negative at -1.8, however employment remains strong at 11.5, but it is sure to come down if orders and shipments don’t improve. Also weak were the price readings, with prices paid at -7.5 and prices received at -4.1. Despite the negative readings, this report mirrors the Empire State’s 6-month outlook reading, which is increasingly upbeat at 35.5. This is a 3.5 point gain from March and suggests that manufacturers see near-term pressures as a temporary phase. Much of the data in the Philly Fed report is negative, although not all of it is gloom and doom. Nevertheless, both the Philly Fed and Empire State reports point to an early Q2-2015 slowdown in the manufacturing sector.

Jennifer Coombs
Wall Street Strategies

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