Monday Economic Report: Housing Starts Rose in August, but Single-Family Activity Fell to a Four-Mon

AICC, through its membership in the Council of Manufacturing Associations, is pleased to present the "Monday Economic Report" from the NATIONAL ASSOCIATION OF MANUFACTURERS (NAM).

By Chad Moutray, Ph.D., CBE –September 27, 2021

NAM Weekly Economic Toplines:

• New housing starts rose 3.9% from 1,554,000 units at the annual rate in July to 1,615,000 units in August. Despite the uptick, single-family housing starts fell 2.8%, down from 1,107,000 units to 1,076,000 units, a four-month low. Housing construction has dampened in recent months on rising construction costs, affordability issues and difficulties in finding workers.

• In contrast, multifamily construction activity, which can often be highly volatile from month to month, soared from 447,000 units to 539,000 units, the strongest reading since January 2020, buoying the headline number.

• Builders remained optimistic about growth over the coming months despite ongoing concerns. Along those lines, housing permits increased for the second straight month, up 6.0% from an annualized 1,630,000 units in July to 1,728,000 units in August, a four-month high.

• The new and existinghome sales data for August were mixed, but the larger trend year to date has reflected some softening in activity. Affordability issues, workforce shortages and reduced inventories are often cited as reasons for weaknesses. Median sales prices remained not far from record levels.

• The IHS Markit Flash U.S. Manufacturing PMI slipped from 61.1 in August to 60.5 in September, a five-month low. While the expansion in activity remained solid, production growth weakened to an 11-month low, and output prices soared to a new record. Input prices pulled back from an all-time high but remained very elevated.

• Manufacturers in the Kansas City Federal Reserve Bank’s district noted solid expansions in activity in September, albeit with some deceleration across the board. Raw material costs continued to grow robustly, at a pace that was not far from May’s record. Encouragingly, respondents continued to be very upbeat in their outlook for the next six months.

• The Federal Open Market Committee left short-term interest rates unchanged, as expected. In addition, the Federal Reserve will continue buying at least $80 billion each month in Treasury securities and up to $40 billion per month in agency mortgage-backed securities. Market participants have begun expecting the FOMC to start tapering those purchases soon, potentially at the next meeting, which is Nov. 2–3.

• The FOMC is not expected to hike the federal funds rate until at least mid-2022. In the latest economic projections, the median federal funds rate would seem to suggest one rate hike in 2022, with three increases in 2023. 

• Federal Reserve participants expect 5.9% growth in the U.S. economy in 2021, with the unemployment rate falling to 4.8% by year’s end. The core PCE deflator should jump by 3.7% in 2021, but with 2.3% and 2.2% estimates for 2022 and 2023, respectively. That suggests some stabilization in pricing pressures starting next year.  

• I spoke about supply chain disruptions, workforce shortages and cost pressures at the “Fed Listens: Perspectives on the Pandemic Recovery” virtual event on Friday, Sept. 24. You can watch the proceedings here.