New filings for unemployment benefits dropped to an eight-week low last week, pushing claims closer to the four-decade low that we saw in July. Meantime, residential construction for August declined, and by more than expected, but the latest data point looks like noise. Why? The year-over-year trend for housing starts is still rising at a solid pace and newly issued building permits—a leading indicator for starts—perked up last month. In both cases, the annual rate of growth strengthened in August.
Let’s take a closer look at today’s numbers, starting with claims. Today’s release reaffirms the bullish signal that’s been conspicuous all year. New filing fell 11,000 last week to a seasonally adjusted 264,000—the second-lowest reading since the early 1970s! That’s no anomaly, as the year-over-year comparison reminds. Claims dropped by nearly 9% last week from the year-earlier level. That’s hardly surprising—claims have been falling in annual terms, with rare exception, for several years. As bullish signals for this leading indicator go, the recent updates are about as good as it gets. Using this data as a guide points to ongoing growth for the labor market, which implies that the economy will continue to expand as well.
Meanwhile, the trend in housing starts looks upbeat as well. The bullish aura is relatively mild compared with starts, but the year-over-year numbers offer a persuasive case for expecting a moderate pace of growth in the near term. The modest monthly dip for August suggests otherwise, but the annual rate of growth remains solid. In fact, starts and permits posted strong year-over-year gains in August–+16.6% and 12.5%, respectively.
The bottom line, today’s numbers offer support for the hawks’ argument that the Federal Reserve should raise interest rates today. The doves will argue otherwise, and for good reason—the broad US macro trend has stumbled lately. The good news is that today’s numbers suggest that the recent soft patch for growth doesn’t signal the end of the recovery that began in mid-2009.
“The housing recovery will continue to be bumpy, but we expect it to continue.” Michelle Meyer, says the deputy head of US economics at Bank of America via Bloomberg. “The labor market has improved, the economy has improved and we’re seeing pent-up demand for housing. So the backdrop is very supportive.”