Today’s winner for wackiest chart of the day comes courtesy of this morning’s report on Housing Starts and Building Permits. Overall, the report was mixed relative to expectations. Housing Starts came in weaker than expected, showing a 9.0% m/m decline, which was the largest monthly drop since last October. Building Permits, meanwhile, handily exceeded forecasts and grew by 6.3% m/m for its largest monthly increase since last November. While the headline numbers showed a wide divergence, all of it was attributable to trends in multi-family units, which have tended to be more volatile, especially over the last several months.
The chart below shows multi-family housing starts and building permits going back to 2005. September’s data was head scratching to say the least. In the case of multi-family starts, they plunged 38% m/m and 41% y/y to an annualized rate of 264K-the lowest level since June 2013. Meanwhile, multi-family Building Permits surged 17% m/m to 486K (annualized). That spread of 222K between the two series represents the sixth widest gap going all the way back to 1959 and the widest since January 1990.
The chart below shows the historical monthly spread between multi-family Housing Starts and Building Permits going back to 1959. We have also included shading to indicate recessions and a 12-month moving average. Looking at the chart, prior large monthly gaps between the two series haven’t been indicative of anything regarding the economic cycle. Looking at the twelve-month moving average, though, there has been a trend where the spread tends to get more negative the later it gets into the economic cycle. In other words, starts and permits tend to be around equal early on in the economic cycle, but as the cycle ages the number of permits that never lead to ground-breaking increases. In the current cycle, we have seen a similar trend as the gap has steadily widened throughout the cycle. That being said, so far in 2016, we have seen some narrowing of that gap,