Housing Permits Up 7.3% in February

According to the Census Bureau, there were 70,800 housing permits filed in February 2014. This was an increase of 7.3% compared to one year ago. However, this was the second slowest rate of month-over-month growth since December 2011. The annual rate of change grew by 16.3%. The rate of growth has decelerated since April 2013. And, even if the modest rate of monthly growth continues, the annual rate of change will continue to decelerate through the summer.

In the current environment of zero interest rates from the Federal Reserve, the real Fed funds rate is a good leading indicator of housing permits. The change in the real Fed funds rate has been trending down year over year since April 2013. A continued decline in the year over year change in real interest rates would be positive for the housing market. However, unless inflation picks up, it will be difficult for the year over year change in the real Fed funds rate to move much lower after the first quarter of 2014. The most likely scenario is that the rate of growth in housing permits will continue to decelerate throughout 2014. Although, the falling year-over-year change in the Fed funds rate in 2013 may moderate the rate of deceleration in housing permits in 2014.

We use housing permits as an early leading indicator for the following industries: appliances; custom processors; furniture; hardware; HVAC; off-road and construction machinery; petrochemical processors; plastics and rubber; pumps, valves and plumbing products; textiles, cloting and leather goods; and wood and paper products. In general, housing permits are a very good leading indicator for the production of plastic product.