ITR Experts Say Construction

Housing Construction: Some Good News

By ITR Economics on August 17, 2023

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After just shy of two years of decline, the US Single-Unit Housing Starts annual rate-of-change ticked upward with June and July data. While the 12-month moving total (12MMT) is still down a relatively severe 19.7% from the year-ago level, that is an improvement from May, when the Starts 12MMT was down 22.3% from the year-ago level.

Why a 2.6-percentage-point Improvement in One Market is Worth Noting

  • Single-Unit Housing Starts – informally known as single-family housing construction – is an early mover in the US macroeconomy. This market comprises one of the earlier railcars in the “economic train.”
  • Trend shifts in Starts are typically followed, several quarters later, by trend shifts in US Industrial Production and other macroeconomic metrics.
  • Therefore, a sustainable upturn in the Starts rate-of-change will bode well for a similar trend improvement for the US industrial sector. We are projecting this improvement will occur by the beginning of 2025, with actual industrial sector rise in 2025.
  • The industrial sector improvement will be the positive economic change that is widely “felt”; it will manifest as increased opportunity and in many cases rising revenue among US companies that are tied to the industrial, retail, and business-to-business sectors.

A Couple Caveats to This Starts Improvement

  • So far we have just two months of tentative rate-of-change rise. We would typically need three or more months – a statistically significant level of change – before such movement could confidently be designated a “recovery trend.”
  • Further rate hikes this year – in excess of 50 basis points or so – would imperil the recovery not only for Starts, but also the subsequent cars on the economic train. The anticipated 2024 industrial sector recession could be more severe and longer-lasting than what we are forecasting.

What To Do

Lead with optimism. As we noted earlier this month, the 2024 downturn will be no excuse to shirk preparations for the rise that will follow, especially in light of the renewed inflation that we will have to contend with starting mid-decade.

Continue to watch the Starts trend. We update our analysis every month in the Trends Report™. For our Insider™ subscribers, we will have a webinar later this month with a comprehensive update on our expectations for residential construction.

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