Housing starts tumble as timber prices soar
US homebuilding fell more than expected in April, likely
pulled down by soaring prices for timber and other
materials, but construction remains supported by an acute
shortage of previously owned homes on the market.
Housing starts tumbled 9.5% to a seasonally adjusted
annual rate of 1.569 million units last month, the US
Department of Commerce reported. Data for March was
revised down to a rate of 1.733 million units, still the
highest level since June 2006, from the previously
reported 1.739 million units.
Groundbreaking activity dropped in the Midwest and the
densely populated South, but rose in the Northeast and
The inventory of previously owned homes is near record
lows. Tariffs on steel imports are also adding to building
costs. Timber prices surged 89% on a year-on-year basis
in April according to the latest producer price data.
Housing starts in Canada fell around 20% in April
compared with March on a sharp decline in multiple urban
starts, though starts remain well above pre-pandemic
levels. Canadian home sales, prices, and starts all fell in
April compared with the previous month, as some of the
frenzy of recent months began to unwind, though activity
Canadian home sales fell 12.5% in April from March,
while the average selling price was down 2.9% in April
from the previous month, according to data from the
Canadian Real Estate Association.
Home sales fall for third straight month
Sales of existing-homes waned in April, marking three
straight months of declines, according to the National
Association of Realtors.
Existing home sales fell 2.7% last month from March to a
seasonally adjusted rate of 5.85 million annualised units.
Sales jumped 34% from April 2020 when the pandemic
caused sales to slow sharply. The pace of sales in April
was the slowest since June 2020 and well below the 6.01
million homes economists expected.
The US median home price surged 19% from a year
earlier to US$341,600, an all-time high. At the end of
April the inventory of unsold homes stood at just 1.16
million, a slight improvement from March. At the current
sales pace that amounts to a 2.4-month supply versus a 4-
month supply a year earlier. Would-be homebuyers across
the US are facing perhaps the most competitive market in
decades, with homes typically receiving multiple offers.
Only the Midwest experienced higher sales from the prior
month, but each of the four major US regions recorded
year-over-year increases. Existing-home sales in the
Midwest grew 0.8% to an annual rate of 1,290,000 in
April, a 13% increase from a year ago. Existing-home
sales in the Northeast fell 3.9% from March, but the
annual rate of 730,000 represents a 30% leap from a year
Existing-home sales in the South decreased 3.7%,
recording an annual rate of 2,600,000 in April, up 39%
from the same time one year ago. Existing-home sales in
the West declined 3% from the month prior, posting an
annual rate of 1,230,000 in April, a 54% surge from a year
Consumer spending a boost to economy
The US economy surged in the first quarter of 2021 with
gross domestic product growth hitting an annualised rate
of 6.4%, the second-best quarterly reading since 2003 after
the pandemic rebound of the third quarter of 2020.
Widespread COVID-19 vaccinations, warmer
temperatures and stimulus checks powered the growth.
Consumer spending, which accounts for two-thirds of
economic growth in the US, increased by 10.7% in the
first quarter according to the advance estimates released
by the US Department of Commerce. Spending on
services saw a small recovery, expanding by 4.6%. In
April, consumer confidence hit a 14-month high.
GDP hit a historic low in 2020, falling by a record 31.4%
in the second quarter as the economy shut down, stores
and businesses closed their doors, and workers stayed
home to avoid spreading the coronavirus.
Since then, around 14 million people have returned to
work and the unemployment rate, which peaked at 14.8%
last spring, has now fallen to 6%.
US job growth disappoints in April
The US economy added only 266,000 jobs in April on the
anniversary of the worst job loss for any month on record.
That was far less than forecasts of economists who had
predicted the US would add 1 million jobs in April.
The unemployment rate rose to 6.1% in April, up from 6%
a month earlier as more people returned to the labour force
to look actively for work. The March jobs numbers were
also revised down to 770,000 from 916,000 reported
initially. It was the slowest improvement for jobs since
January. Experts predicted that the vaccine rollout and the
reopening of the economy would jolt hiring.
As analysts come to terms with how wrong their forecasts
were, they point to other data like weekly claims for
unemployment benefits as proof that improvements are
continuing: In early May, jobless claims dropped below
500,000, a new pandemic-era low.
"With most of the high-frequency indicators still pointing
to further improvement and jobless claims falling like a
stone in recent weeks ... we doubt that it signals the
recovery is at risk," said Capital Economics senior US
economist Michael Pearce.
Meanwhile, factories and manufacturers have had trouble
finding specialized and even entry-level workers as
employees worry that those jobs could be sent overseas or
automated. Manufacturing employment declined by
18,000 jobs last month.
"The details of the data show signs that the pool of
available labor is extremely tight," wrote Jefferies Group
economists Thomas Simons and Aneta Markowska in a
note to clients.
Consumer confidence fell in early May amid inflation
Consumer sentiment dropped sharply in early May as
inflation spiked and consumers prepared for higher interest
rates. The preliminary estimate of the University of
Michigan's index of consumer sentiment came in at 83, a
drop of 6% from the post-pandemic high reading of 88 a
month ago.Both the current conditions and future
expectations indices fell, by 6.6% and 6.2% respectively.
"Rising inflation also meant that real income expectations
were the weakest in five years," said Chief Economist
Richard Curtin. "The average of net price mentions for
buying conditions for homes, vehicles, and household
durables were more negative than any time since the end
of the last inflationary era in 1980."
Curtin said he expects consumers will continue to spend
because of pent-up demand and even as precautionary
moves ahead of rising prices for goods and services.
"Importantly, consumer spending will still advance despite
higher prices due to pent-up demand and record saving
balances," Curtin added.
Labour shortages frustrate manufacturers
According to an Institute for Supply Management survey
published in May businesses in the construction industry
reported challenges finding and retaining skilled and
unskilled workers, with some companies saying ¡°we are
not accepting all the work that we could if we had the
Manufacturers struggled to find skilled workers even
before the pandemic but it¡¯s only gotten worse. ¡°In short,
the most pressing problem in the manufacturing sector
isn¡¯t a lack of demand, it¡¯s the ability to meet demand,¡±
said chief economist Richard Moody of Regions Financial.
Despite the challenges, economic activity in the
manufacturing sector grew in April, with the overall
economy notching an 11th consecutive month of growth.
While the ISM fell ratings in April, they are still
exceptional. But top manufacturing executives say they
are struggling to overcome key shortages that are causing
the prices of most goods to rise, in some cases sharply.