June 17, 2014

AP (‘Struggled’ For ‘Traction’) and Delusional Bloomberg (‘Industry Stabilized’) Completely Disagree in Reporting on Today’s Homebuilding Declines

There must have been a double delivery of Obama administration koolaid over at Bloomberg News this morning.

The business wire service, which ordinarily is slightly less imbalanced in its business and economics reporting than the Associated Press, somehow interpreted a 6.5 percent seasonally adjusted decline in housing starts during May and a nearly identical percentage drop in building permits — with both figures lower than May 2013 — as evidence that “the homebuilding industry stabilized after a first-quarter swoon.” That’s ridiculous. The first quarter was supposedly as bad as it was because of bad winter weather; so there should have been an overcompensating bounceback. It hasn’t happened. Meanwhile, that second Bloomberg koolaid delivery must have been the one meant for AP, whose Josh Boak turned in a report noteworthy for its unusual sobriety (bolds are mine throughout this post):



The pace of U.S home construction slipped in May with many Americans still struggling to afford new houses.

Builders started work at a seasonally adjusted annual rate on 1.01 million homes last month, the Commerce Department said Tuesday. That was down 6.5 percent from 1.07 million in April.

Construction firms began work on fewer single-family houses, condominiums and apartments last month.

Home construction has struggled to gain much traction this year, limiting its ability to contribute as much to broader economic growth as it has in the past. Many would-be buyers face higher mortgage rates than at this time last year, while builders are selling fewer new homes but charging more for them. That has reduced the number of possible buyers and the number of construction jobs. Builders employ 1.49 million fewer workers than they did at the start of the Great Recession in December 2007, a loss of roughly 20 percent.

“We expect housing to contribute positively to 2014 economic growth, but the magnitude of its contribution likely will be much smaller than that reported for the past two years,” said Dana Saporta, director of U.S. economics at the bank Credit Suisse.

In May, construction tailed off in the Northeast, Midwest and West. Only the South experienced greater building activity in May.

The only quibble I have with Boak’s report has been a pet peeve of yours truly for years, namely that “starts” aren’t the same thing as “construction.” The latter includes work continued or finished on units previously started. On a seasonally adjusted annual basis, completions increased nicely from April to May (840,000 to 897,000), and were almost 25 percent above May 2013.  The seasonally adjusted number of units under construction only increased by 2 percent in May, but were about 20 percent higher than May 2013. That said, as indicators of where things are headed, starts and permits are the most useful barometers. So Boak’s “struggling assessment is valid, even if their consistently erroneous characterization by AP isn’t.

Meanwhile, over at Bloomberg — well, let me just run a half-dozen paragraphs of the nonsense Jeanna Smialek and Shobhana Chandra generated, wherein they even put a positive spin on inflation creeping upward:

Consumer Prices Rising as U.S. Housing Stabilizes: Economy

Consumer prices rose in May by the most in more than a year, showing U.S. companies are gaining some pricing power as the economy strengthens, and the homebuilding industry stabilized after a first-quarter swoon.

The cost of living increased 0.4 percent, the biggest advance since February 2013, according to Labor Department data released today in Washington. Other figures showed builders broke ground on 1 million homes at an annualized rate after 1.07 million in April, the best two-month reading since late 2013.

The reports will be welcome news to Federal Reserve policy makers meeting today and tomorrow as the pickup in inflation lessens the threat of a prolonged drop in prices that hurts economic growth. Central bankers are projected to continue scaling back their bond-buying program, while an increase in interest rates is delayed until well into 2015.

“Inflation in the U.S. is in a sweet spot — it’s not too hot, it’s not too cold,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York, who projected a 0.3 percent increase in consumer prices. “The disinflationary stress that we’ve had over the past two or three years has effectively ended. That’s the big story here.”

A strengthening job market and a retreat in mortgage costs in recent weeks are helping support residential real estate following a lull in building in early 2014 when frigid temperatures prevented builders from breaking ground. Faster sales will prompt developers to step up construction, given supplies of homes on the market remain lean and property values are rising.

“Housing is going to continue to gather steam as we go through the balance of the year,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who forecast 1 million starts. “If housing is better, more people are working. If more people are working, you have knock-on effects on other demand components. It’s another oar in the water for the U.S. economy.”

Never has so much praise been dropped on a pair of one-month declines of over 6 percent. Clearly, there was enough koolaid over at Bloomberg today that its quoted experts were able to imbibe some themselves.

The job market is strengthening a bit, but its relevance to homebuilding is questionable. Zero Hedge pointed out today that real average hourly earnings are exactly where they were back in the summer of 2008. Meanwhile, student loan debt and delinquent student loan balances have both exploded. The pool of people who can truly afford to buy a home and qualify for a loan has probably shrunk, and certainly hasn’t done anything more than barely grow.

In the circumstances, Bloomberg’s expressed certainty that “housing is going to continue to gather steam” really has no basis.

Cross-posted at NewsBusters.org.


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