Housing starts in the U.S. bounced back, according to a new Commerce Department report, but concerns remain about the future of the housing market as well as the wider economy.

Nationwide housing starts rose 8.3% in June from the month before to a seasonally adjusted annual rate of 1.22 million units, the highest level since February and better than a consensus estimate from analysts.

Single-family production, the overwhelming majority of the market, increased 6.3% to a seasonally adjusted annual rate of 849,000 units, while multifamily starts rose 13.3% to 366,000. Single-family production was at its second-highest rate this year.

“We are encouraged by the June production report, but our builders continue to express concerns about lot and labor shortages, and building materials price increases,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB).

Overall permit issuance in June was up 7.4% to a seasonally adjusted annual rate of 1.25 million units. Single-family permits increased 4.1 percent to 811,000 units while multifamily permits jumped 13.9% to 443,000.

“We are seeing housing production return to trend after a softer reading last month,” said NAHB Chief Economist Robert Dietz. “The gradual growth in single-family starts in 2017 is in line with our forecast, and we should see this sector continue to strengthen throughout the year as consumers show interest in the housing market.”

Housing May Yet Be On Shaky Ground

However, not everyone is convinced about how solid the housing market is following the release on Tuesday of the NAHB Housing Market Index, which fell from 66 to 64 in July, an eight-month low.

This suggests a bit of a contradiction between the two latest reports, according to Lindsey Piegza, chief economist at Stifel Fixed Incomes, because as builders continue to break ground on new projects, builder confidence appears to be waning.

“Housing market participants still remain optimistic about further demand and market conditions, but clearly less optimistic than they were at the start of the year,” she said. “In other words, this latest, larger-than-expected increase in activity at the end of second quarter may be the, or somewhere near, the peak of summer activity with the likelihood of a decline leering around the corner in third quarter, particularly as [overall] economic conditions have failed to ‘rebound’ April to June, as expected.”

Other Economic Components Look Less Than Solid, Too

Piegza was referring to numbers released late last week showing retail sales in the U.S. fell for the second month in a row during June, slipping 0.2% from May as last month’s performance was revised upward for a 0.1% decline rather than the originally reported 0.3% drop. The drop pulled down the annual pace of improved sales form 4.1% in May to 2.8% in June, a 10-month low.

This, coupled with a separate Commerce Department report showing prices at the retail level in June were unchanged from the month before, suggests there is continued weakness on the consumer side of the economy.

“On balance, consumer inflation has registered soft performances over the prior four months and June was no exception as headline Consumer Price Index [CPI] was unchanged,” said Sam Bullard, senior economist at Wells Fargo Securities. “The flat monthly performance was lower than the consensus expectation, and reinforces the view that the price environment exhibits little upward momentum as we enter the second half of the year.”

Year over year, the CPI has steadily declined from its 2.7% recent high in February to its current reading of 1.6%.

Also, a measure of consumer sentiment fell this month, according to the University of Michigan Survey of Consumers with its gauge down about 9% below its January peak. However, consumers' assessments of current economic conditions regained the March peak, the highest level since the July 2005 survey.

“To be sure, the data do not suggest an impending recession,” said Surveys of Consumers Chief Economist Richard Curtin. “Rather, the data indicate that hopes for a prolonged period of 3% gross domestic product growth sparked by Trump's victory have largely vanished, aside from a temporary snap back expected in the second quarter.”

He said the declines recorded are now consistent with just above 2% gross domestic product (GDP) growth in 2017.

In the first quarter of the year the U.S. GDP increased at an annual rate of 1.4%, marking its worst performance since the second quarter of 2016.

Government numbers on how the overall economy performed in the second quarter of the year are due out July 29, when the Commerce Department releases its first GDP numbers for the period.

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Evan Lockridge

Evan Lockridge

Former Business Contributing Editor

Trucking journalist since 1990, in the news business since early ‘80s.

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