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Economic Watch: Home Construction Rises, Consumer Sentiment Hits Seven-Year High

October 17, 2014

By Evan Lockridge

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Residential construction in the U.S. has rebounded but remains volatile, hitting an annual rate of just more than 1 million units for only the third time this year in September, according to the U.S. Commerce Department.

September housing starts increased 6.3% from the upwardly revised level in August, while the July level was revised upward from a 14.4% decline to a 12.8% drop. This followed a 21% surge in July that was preceded by declines in June and May.

Compared to the same time a year ago, September housing starts gained 17.8%.

Home construction surged 13.9% in the West, followed by a 5.3% gain in the Northeast, with increases of 4.2% and 3.5% percent in the South and Midwest, respectively.

The barometer of future home building activity, the number of building permits issued, increased 1.5% from the revised August level and is 2.5% higher than compared to September 2013.

“After last month's weakness, starts and permits appear to have bounced back within the recent range. Increasingly volatile, we appear to be little changed from levels at the start of the year suggesting stabilization at best in housing, at least from a supply standpoint,” said Lindsey Piegza, chief economist at the investment firm Sterne Agee. “Uneven demand is likely to keep home builders cautious for some time, despite the fact that industry confidence is on the rise thanks to relative improvement in conditions compared to weakness at the start of the year.”

The report is in contrast to one issued Thursday by the National Association of Home Builders, showing after four consecutive monthly gains, builder confidence in the market for newly built single-family homes fell after hitting its highest level in nine years during September.

“While there was a dip this month, builders are still positive about the housing market,” said NAHB Chief Economist David Crowe. “After the Housing Market Index posted a nine-year high in September, it’s not surprising to see the number drop in October. However, historically low mortgage interest rates, steady job gains, and significant pent up demand all point to continued growth of the housing market.”

Meantime, a measure of how consumers feel shows their mood brightened this month, with the Thomson Reuters/University of Michigan Survey of Consumers hitting its highest level in seven years.

The preliminary reading increased to 86.4, its best since July 2007, from a final reading of 84.6 in September.

"The data show absolutely no signs that fear and panic is about to overtake the consumer sector," said survey director Richard Curtin about "broader concerns about the global economic meltdown, escalating military conflicts, and rising concerns about Ebola."

The survey’s measure of consumer expectations also hit it highest level since October 2012 while its gauge of current economic conditions was unchanged from the month before.

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