PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Economic Data: Housing Woes Continue, But Signs of a Turnaround Exist

By at 27 March, 2019, 8:04 am

Growth in housing is always good news for small businesses, as 97.4 percent of employer firms in residential construction have fewer than 20 employees.

by Raymond J. Keating-

Residential housing continues to be a drag on the economy, as confirmed, once again, in the latest housing permits and starts data from the U.S. Census Bureau.

Housing starts (seasonally adjusted data) for February were down by 8.7 percent compared to January, and off by 10.6 percent versus a year earlier. Single-housing unit starts performed the worst, down by 17 percent in February versus January, and down by 10.6 percent compared to a year earlier.

As for apartment building (5 units or more) starts, they grew by 23.5 percent in February over January, but were down by 5.4 percent versus February of last year.

Housing starts have failed to come close to recovering to pre-crisis levels, and roughly stand at the same level of starts as in 1992.

Source: Federal Reserve Bank of St. Louis, FRED

Meanwhile, housing permits, which serve as an indicator of future housing construction, declined in February by 1.6 percent compared to January, and were off by 2.0 percent versus a year earlier. Single-unit permits were flat in February versus January, and down by 7.3 percent compared to February 2018. Also, permits for 2-to-4-unit housing declined by 18.2 percent versus January, and off by 21.7 percent a year earlier; while apartment building permits dropped by 2.9 percent versus January, but were up by 12.3 percent versus a year earlier.

While housing starts and permits data are highly volatile from month to month, the recent trend on housing has been troubling, and it is confirmed by the latest GDP data. Real residential investment has declined in six of the last seven quarters, including declines in four straight quarters.

There are reasons for optimism that housing will turn around, including employment and wage growth, and a recent decline in mortgage rates. Also, after declining throughout 2018, the National Association of Home Builders Housing Market Index showed rising confidence in the first two months of this year, and stabilizing in March.

Growth in housing, of course, would be good news for small businesses, as 97.4 percent of employer firms in residential construction have fewer than 20 employees.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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