Newly issued economic reports show housing starts in the U.S. declined for the third straight month in May, while consumer confidence slipped and industrial production was unchanged due to a drop in manufacturing.
Led by a drop multifamily production, nationwide housing starts fell 5.5% in May to a seasonally adjusted annual rate of 1.09 million units, according to figures released Friday by the Commerce Department.
Multifamily starts fell 9.7% to a seasonally adjusted annual rate of 289,000 units, while single-family production edged down 3.9% to 794,000.
“After a strong start for single-family building this year, recent months have recorded softer readings,” said NAHB Chief Economist Robert Dietz. “However, on a year-to-date basis, single-family starts are up 7.2% as builders add inventory to the market.”
Overall permit issuance in May was down 4.9% to a seasonally adjusted annual rate of 1.17 million units. Single-family permits inched down 1.9% to 779,000 units, while multifamily permits fell 10.4% to 389,000.
Consumer Confidence Erodes
This came as a separate and preliminary report showed consumer confidence fell in June and is up only marginally compared to the same time a year ago, according to the University of Michigan Survey of Consumers.
The modest early June drop of 2.6 points in the Sentiment Index to 97.1 masks a much larger decline since June 8. Prior to then it averaged 97.7, but since June 8, the index fell to 86.7, a decline of 11 points.
While this date corresponds with former FBI Director James Comey's testimony over his firing, only a few consumers spontaneously referred to him or his testimony when asked to explain their views, according to Surveys of Consumers chief economist, Richard Curtin.
“Importantly, the decline was observed across all political parties, but the loss in confidence among self-identified Republicans since June 8 was larger than among Democrats, with Independents showing the greatest falloff,” he said. “The recent erosion of confidence was due to more negative perceptions of the proposed economic policies among Democrats and the reduced likelihood of passage of these policies among Republicans.”
He noted a strong job market, improved household income and wealth have provided a financial buffer against rising uncertainties.
“Nonetheless, consumers have become less optimistic about the future course of the domestic economy. Even with the expected bounce back in spending in the current quarter, personal consumption is expected to advance by 2.3% for all of 2017,” Curtin said.
Manufacturing Stalls Industrial Production
This follows a report from the day before that showed activity at the nation’s factories, mines and utilities was unchanged in May from the month before, according to the Federal Reserve.
Its measure of industrial production follows a large increase in April and smaller increases in February and March.
Manufacturing output declined 0.4% in May and showed little net change since February but is up 1.4% compared to the same time a year earlier.
The measures for mining and utilities posted gains of 1.6% and 0.4%, respectively, in May. Together these two sectors make up a little more than a tenth of all U.S. industrial production.
At 105% of its 2012 average, total industrial production in May was still 2.2% above its year-earlier level.
Capacity utilization for the industrial sector edged down 0.1 of a percentage point in May to 76.6%, a rate that is 3.3 percentage points below its 1972–2016 average.
The May performance in manufacturing did not come as a surprise following two reports released earlier this month, one indicating the sector barely expanded from April while another showed the weakest reading since September.
It also marks two declines in the past three months and serves as the most recent reminder that the factory sector is struggling to put points on the board in a climate of pronounced fiscal policy and political uncertainty, according to Tim Quinlan, senior economist at Wells Fargo Securities.
In a note to investors, he said the May slump in manufacturing production could be temporary.
“The biggest declines from an industry perspective were motor vehicles and parts, which fell 2% in the month, as well as wood products and primary metals, which each posted declines of 1.4%,” Quinlan said. “The giveback in autos production may sound ugly, but it follows a 4.1% pick-up in the prior month, so the softness here is only a partial payback.”
He noted that regional reports for June indicate manufacturing “solidly exceeded consensus expectations for June” and may indicate additional firming of the manufacturing sector when June figures are released.
“We maintain our forecast for incremental manufacturing improvement, even in the face of this soft report for industrial production,” Quinlan said.