A perspective on USA economic data – a relationship between new Housing Starts and Industrial Production (yr-on-yr % growth).

It has long been said that new housing starts in USA is a leading indicator, for the USA economy and for commodities consumption.  These (below) data, over the past 5 ½ decades, support a relationship between housing starts and industrial production.  Importantly it appears that a significant (and sustained) fall in housing starts (from positive to negative growth) generally precedes a fall in industrial production.  However the lead time can be as much as 12-24 months.

Housing Starts for November recorded -7.0% yr-on-yr growth, after seven consecutive months of positive yr-on-yr growth.  USA’s November Industrial Production data recorded +5.2% yr-on-yr growth, in the 59th consecutive month of positive yr-on-yr growth (from January 2010).

December 2009 was the first positive (yr-on-yr%) month for USA housing starts after a streak of 48 consecutive negative (yr-on-yr% growth) months for housing starts (from December 2005), which encompassed the global financial crisis.

The most comparable other periods since 1960 were the 1975 recession and the 1980-82 (double-dip) recession.

20141212 CR Blog

The burning question is whether the November 2014 housing starts growth is the warning of a new down-trend for USA industrial production, or is merely a short lived dip?

This week’s Matau Advisory – Commodity Review, for the wk ended 19 December, will contain further data on the November 2014 housing starts result, and on outlook for USA and 17x other key economies.

If you are not a current subscriber to Commodity Review, consider downloading and completing a subscription form at this link to receive at least 48 issues per year with informative weekly updates on the status of the commodities markets, market drivers, and related economic data.