Housing Starts, Holiday Sales Hopes Point to Resurgent U.S.

Despite growing concern over America’s economic growth, above expectations housing starts and bullish forecasts for holiday retail sales indicate underlying strength in consumer demand.

Despite growing concern over America’s economic growth, above expectations housing starts and bullish forecasts for holiday retail sales indicate underlying strength in consumer demand.

Housing starts rose to a seasonally adjusted annual rate of 1.2 million in September, 6.5% above August and 17.5% higher than the prior year, according to new data released by the Census Bureau. The strong pace of new housing starts is being driven by multi-family units, with 454,000 SAAR new units in September, a 28.6% increase from the prior year. However, single-family units also showed strength, with a 12% year-over-year gain that was above expectations.

While new housing starts showed buoyant growth on strong demand, building permits were significantly weaker at 1.16 million units in September. That represented a 5% fall from August. However, year-over-year growth remains high and above historical norms, with starts 4.7% above the prior year’s figure of 1.05 million. Economists believe steady demand for housing is likely to cause decelerating but still high growth rates for housing permits and starts throughout 2015 and 2016, with more Americans gaining confidence in the real estate market.

Home prices have continued to appreciate throughout 2015 according to most studies; even as some analysts worried that falling price, growth could cause homes to begin to lose value, especially if weak economic demand hinders the market. Those fears have so far seemed unwarranted, with home prices rising 5% year-over-year in July, according to the Case-Shiller index. The National Home Price Index, which uses a separate methodology for tracking home prices, reported a 4.7% gain in home prices for the same month. Most price gains are in the western United States, which is also seeing stronger population growth than New England and the eastern seaboard.

Strong Holiday Sales

The National Retail Federation is strongly optimistic of holiday sales in 2015, which it sees as a welcome reprieve from weak holiday spending in 2014. The NRF announced Tuesday its analysts see a 4.1% rise in holiday spending, excluding auto, gas, and restaurant sales. That is significantly higher than the 2.9% increase that is the average for the last 10 years, and will account for nearly 20% of retail sales for the year. The NRF also expects U.S. holiday sales to reach $3.2 trillion in 2015.

NRF CEO Matthew Shay saw unequivocal signs of resurgent retail demand in the data, bringing their group to an optimistic outlook for the 4th quarter. “Retailers could see a welcome boost in holiday shopping, giving some companies the shot in the arm they need after a volatile first half of the year and an uneventful summer,” he said adding that shoppers “will be extremely price sensitive as they have been for quite some time” due to restrained budgets for U.S. consumers.

NRF Chief Economist Jack Kleinhenz points to small accelerations in consumer income, spending, and recently improving consumer confidence as indicators that retail sales are likely to take off for the holiday season. “In the grand scheme of things, consumers are in a much better place than they were this time last year, and the extra spending power could very well translate into solid holiday sales growth for retailers; however, shoppers will still be deliberate with their purchases, while hunting for hard-to-pass-up bargains,” he said.

An increase in consumer credit was also a driver in retail sales for 2015.