Housing starts in January rise to highest level in two years. (Industry Forecast & Update).

Housing starts rose 6.3 percent in January to their highest level since March 2000. That with a 3.1 percent increase in building permit activity in January suggests support for continuing strength in February. The high levels of housing construction during the current national economic recession continue a unique trend in comparison to all other economic downturns since the end of World War II.

Housing starts in January rose to a 1.678 million unit seasonally adjusted annual rate, from a revised 1.579 million unit rate for December, according to the U.S. Department of Commerce. A 1.345 million unit single-family starts rate occurred in January, up 3.5 percent from the 1.299 million unit rate for December. Multifamily starts jumped 18.9 percent to a 333,000 unit annual rate last month, from the 280,000 unit rate for December. Starts of apartment units (in structures with five or more units) increased 8.3 percent to a 287,000 unit rate in January from a 265,000 unit rate a month earlier.

Building permit activity occurred at a 1.706 million unit rate in January, up from the 1.654 million unit rate for December. Single-family permits increased 6.6 percent. Total multifamily permits fell 7.4 percent, with the apartment component down 9.3 percent.

Housing starts regionally were mixed last month. They increased 14.4 percent in the South and 8.7 percent in the Northeast. Declines of 3.6 percent in the Northeast, and 0.3 percent in the Midwest were recorded.

Rental Housing Market and Economic Update--February

Most of the recent economic news is positive. GDP rose slightly during the fourth quarter of last year, instead of an expected drop. Two indexes, the Consumer Confidence Index and the Leading Economic Indicators, that tend to foretell changes in the direction in the economy, have turned around and are moving upward. Conditions in the rental housing market are easing only moderately in the current recession unlike past downturns.

Rental Housing Market

Apartment builders are facing less pressure in the market for construction workers. The unemployment rate for construction workers rose to 9.4 percent in January. This was 2.7 percentage points higher than the 6.7 percent rate a year earlier. Easing in the labor markets has helped reduce the rate of increase in total compensation costs per construction worker to 4.3 percent in the fourth quarter of 2000 from 5.8 percent a year earlier.

Net effective rents rose at a 3.7 percent annual rate during January in the Consumer Price Index (CPI) data series. A rising apartment vacancy rate should produce moderation in the rate of increase in the rent index by the spring. Changes in the rent index tend to lag trends in vacancy rates.

New apartment construction starts during January rose 22 percent to a 287,000 unit seasonally adjusted annual rate. The January rate matches the average of the previous 12 months.

The Economy

The initial estimate of Real GDP for the fourth quarter provided a surprising 0.2 percent growth rate when a further drop was anticipated. The major reason for the increase was a 38.4 percent rise in consumer spending for durables, and especially autos. Autos rose as a result of the zero interest rate financing and other incentives offered by manufacturers. Weaker business investment and reduction in inventories, and a larger trade balance largely offset the rise in consumer durable spending. Change in the GDP growth rate could turn negative as the estimate is revised.

Real disposable personal income resumed growth in December after two months of declines.

Consumer Confidence jumped an additional 2.8 points in January. This brings the total rise to more than 12 points since the Conference Board Index bottomed out in November, but the level of the index is still nearly 18 points below the pre-terrorist attack level in August of last year. Still the increases are positive since an economic recovery will not occur without improved consumer confidence.

The Conference Board's U.S. Index of Leading Economic Indicators rose for the fourth straight month in January. This good news indicates that there is growing impetus in the economy and recovery is near.

Labor Markets

The U.S. jobless rate declined to 5.6 percent in January, from 5.8 percent in December. A significant number of discouraged job seekers who left the labor force in January were the cause of the drop in the unemployment rate and not increased employment. Employers cut a net of 89,000 jobs in January.

Inflation and Interest Rates

Easing of monetary policy is almost certainly over in the current economic cycle. The next move by the FED will be to raise interest rates slightly as the economy recovers.

Consumer prices inflation rose at a 2.8 percent annual rate in January after falling in the three previous months. Increased energy prices accounted for the rise. Inflation should remain under control and not threaten the economy this year.

Robert J. Sheehan is President of Regis J. Sheehan Management Economics Consultants in McLean, Va., and serves as NAA's Consulting Economist. He can be reached at 703/893-9185 or via e-mail at [e-mail]