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Low Rates, Hurricane, Fire Damage Lift Home Building

The housing sector has been on a general upward trend for the last several months, fueled by record low mortgage rates.

Home building and sales tumbled at the beginning of the pandemic due to uncertainty and social distancing. But the Federal Reserve’s stance of low rates for a long time, a recovery of some jobs and a desire of homeowners to trade up to larger homes has fueled more than just a rebound from the declines seen in the spring.

Now another factor comes into play, particularly in the Gulf Coast region and California. Natural disasters like multiple hurricanes and wildfires have catastrophic effects on lives and businesses, including the destruction of homes that need to be repaired and replaced.

While home repairs would not show up in the September housing starts and permits data, which will be released on Tuesday, complete replacement of homes will be captured. Last month, starts and permits slowed modestly, but the trend from April has been decidedly upward, leaving both measures roughly unchanged from their year-ago levels.

The need to rebuild damaged homes should give a boost to both starts and permits in September, possibly lifting building to the levels seen in January and February prior to COVID. The NAHB’s September builders’ confidence reading hit a record high when it was released last month and may have gone even higher without concerns about lumber supplies.

The NAHB’s index will be updated on Monday with new data for October.

Home sales have also benefited from the low mortgage rates and the desire to trade up homes. Existing home sales rose to a 6.00 million annual rate in August, the highest point since December 2006 during the housing boom.

Based on the NAR’s pending home sales data, which surged by 8.8% in August, existing home sales should post another increase for September when it is released on Thursday. The pending home sales data reflects the timing of preliminary contracts, most of which translate into sales.

Data on new home sales will be released on October 26.

October regional conditions data point to mixed growth

The Empire State and Philadelphia Fed measures released this week for October indicated continued growth in the Northeast, though the pace varied. The Empire State declined, while the Philadelphia Fed region’s measure surged after three straight drops. However, both were well above their breakeven points.

Additional regional data will be released from the Kansas City Fed on Thursday. That measure ticked down to a reading of 11 in September from 14 in August, but it still indicated solid expansion.

The Markit flash estimate for manufacturing will be released on Friday. That measure rose slightly in the month to 53.2 in September from 53.1 in August, again reflecting modest expansion.

On the services side, the first regional data for October will be released from the Philadelphia Fed on Tuesday. That measure is on a five-month upward trend since plunging to a record low -96.4 reading in April. The September reading is significantly improved at 8.0.

Other services data will be released on Friday by the Kansas City Fed. That measure was the only negative services reading in September, falling to -7 from 20 in August.

Markit’s flash services estimate will also be released on Friday, looking for a rebound after a decline to 54.6 in September from 55.0 in August.

Data from the Richmond, Dallas and Chicago regions will be released in the following week.

Initial claims data could represent movement to a new level

The level of initial claims surged in the October 10 week, with no clear reason for the increase. Seasonal adjustment factors expected a smaller increase in unadjusted claims in the week, so the larger increase could reflect the use of an outdated estimate for California.

In short, the surge in the October 10 week could have just been an anomaly that will be reversed in the coming week’s data. But it could also be the start of rising initial claims as businesses return to their layoff plans. This is  particularly true in the restaurant business, as cooler weather cuts into outdoor dining.

The October 17 week data are for the employment survey week. In the September 12 survey week, initial claims were at a level of 266,000, so this could be the first month since the recovery began that the month/month change could be an increase.

The four-week moving average rose in the October 10 week, breaking a string of 10 straight gains. The level of initial claims will need to fall below 873,000 (barring any revisions) to resume the downward trend in the average.

Here are the key data events for the coming week (U.S. Eastern Time):

MONDAY, OCT. 19                                                    

10:00 am        NAHB home builders’ index (Oct)

TUESDAY, OCT. 20                                                  

8:30 am          Housing starts and Building Permits (Sept)
8:30 am          Philadelphia Fed Nonmanufacturing (Oct)
8:55 am          Redbook Same Store Sales (Oct 17 Week)
10:00 am        BLS State Unemployment (Sept)

WEDNESDAY, OCT. 21

7:00 am          Mortgage Bankers Weekly Applications (Oct 16 Week)
2:00 pm          Beige Book                                        

THURSDAY, OCT. 22                                                           

8:30 am          Initial jobless claims (Oct 17 Week)
10:00 am        Existing home sales (Sept)
10:00 am        Index of leading economic indicators (Sept)
11:00 am        KC Fed Manufacturing (Oct)
9:00 pm          Presidential Debate

FRIDAY, OCT. 23                                                      

9:45 am          Markit Flash (Manufacturing and Services) (Oct)
11:00 am        KC Fed Nonmanufacturing (Oct)
1:00 pm          Baker-Hughes Rig Count

Separately, from Exante Analytics, the upcoming week’s SPX outlook seems to suggest the near-term door remains open for more rangy-to-higher price action:

Kevin Kastner

kevin@macenews.com

www.macenews.com

Julie Ros

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