Housing Permits See Slower Growth in August

According to the Census Bureau, there were 86,800 housing permits filed in August 2014. This was an increase of just 1.9% compared to one year ago. This was the second lowest month-over-month rate of change since July 2011. The annual rate of growth continued to decelerate, as it has done since April 2013. Housing permits are growing at their slowest annual rate since February 2012.

The real 10-year treasury rate is a good leading indicator of housing permits. The year-over-year change in the real 10-year treasury rate has been trending down since July 2013. In fact, the change moved into negative territory for the first time since September 2012. Since changes in the interest rate lead changes in housing permits and construction spending by about 12 months on average, we should expect to see the rate of growth in housing permits bottom our soon (everything else being equal of course).

However, the Federal Reserve has stated it will end quantitative easing and has hinted at raising interest rates sooner than many in the market expect. This could reverse the current trend in the year-over-year change in interest rates very quickly. Consequently, the positive boost from the trend in interest rates over the last year could be relatively muted.

We use housing permits as an early leading indicator for the following industries: appliances; custom processors; furniture; hardware; HVAC; off-road/construction machinery; petrochemical processors; plastics; plastic/rubber products; pumps/valves/plumbing products; textiles/clothing/leather goods; and wood/paper products.