The day before Donald Trump was inaugurated, the housing market provided further evidence of the confidence Americans continue to have in the U.S. economy.
The Commerce Department said housing starts were at a seasonally adjusted annual rate of 1.23 million in December. That was 11.3 percent higher than the November pace and 5.7 percent higher than the rate a year earlier.
For all of 2016, housing starts were at their highest level in nine years.
"For the year as a whole, housing starts of 1.17 million units were the strongest since 2007 as home builders try to keep up with rising demand — pushed up by low [if rising] mortgage rates, solid job growth, rising wages, and faster household formations [especially from millennials]," David Berson, chief economist at Nationwide, said in a note quoted in a Business Insider story.
Building permits were down 0.2 percent for December, at 1.21 million, and Berson added a note of caution.
"Even with stronger home construction in recent years, more increases in the supply of new homes will be needed to balance out the market, reflected in rapid house-price appreciation in recent years."
The Wall Street Journal reported that the 2016 increase in starts obscured a divergence in the types of residential construction that are occurring. The Journal said single-family starts were up 9.3 percent last year, but construction of buildings with five or more units fell 3.1 percent.
The permit data had a similar pattern.
“When you look at single-family [construction] we’re still at recession levels, which is quite remarkable because historically the real-estate cycle leads the business cycle,” Sam Khater, deputy chief economist at CoreLogic Inc., a housing data firm, told the Journal.
Today we will see the December report on home resales from the National Association of Realtors. Economists’ consensus forecast is that they occurred at a seasonally adjusted annual rate of 5.49 million, down from 5.61 million in November.
A day before the housing numbers were released last week, the Federal Reserve said industrial production had its strongest advance in two years in December, rising 0.8 percent. Output had fallen 0.7 percent in November.
Reuters said the rebound was attributable to the biggest jump in utilities since 1989 as temperatures fell nationally. The central bank's measure of the industrial sector comprises manufacturing, mining, and electric and gas utilities; Reuters said overall industrial production fell at an annual rate of 0.6 percent in the fourth quarter.
Also worrisome to economy watchers was that inflation rose overall last year at the fastest pace in five years. The Labor Department said the Consumer Price Index rose 2.1 percent in 2016, which MarketWatch said was the biggest increase since a 3 percent gain in 2011.
The index rose 0.3 percent in December on the strength of energy price gains and rent increases. Bloomberg said that as fuel costs rise and rents and medical costs become more firm, price increases will put added pressure on the economy, pushing the Fed toward more interest-rate increases.
“The overall narrative is, inflation is accelerating,” Tom Simons, a senior economist at Jefferies LLC in New York, told Bloomberg. “We’re seeing broad-based, modest increases in prices. The Fed is going to be pleased” with these numbers.
This week, besides today’s report on existing-home sales, economy watchers will see the December report on new-home sales (consensus forecast, 595,000 at a seasonally adjusted annual rate, up from 592,000 the previous month) on Thursday and reports on fourth-quarter gross domestic product and durable goods orders on Friday.
The consensus forecast on the GDP is for growth of 2.2 percent, down from 3.5 percent in the third quarter.
The University of Michigan will issue its final Consumer Sentiment Index for January on Friday. The forecast is that the public’s mood continued to slightly improve, raising the index to 98.4 from a mid-month reading of 98.1.
The confidence reading was taken during Trump’s transition, but before he took office. Next month we will begin to see the way the new administration’s first actions are affecting the decisions consumers will make in the months ahead.