Economy Watch: Led by Multifamily, Residential Starts Spike in November
- Dec 21, 2011
The U.S. Census Bureau reported on Tuesday that housing starts swung upward by 9.3 percent in November to an annualized rate of 685,000 units. That’s well below a healthy number of starts, but it’s still the highest rate since the optimistic spring of 2010 (that was a short-lived optimism, of course).
Single-family starts edged up 2.3 percent to an annualized rate of 447,000 units, the most since June 2011. Even so, for all of 2011 single-family starts will probably record an all-time low—or at least a low since the government began tracking housing starts almost 50 years ago. Bloomberg estimates that when all is said and done, 423,000 new U.S. homes will have been built this year, 10 percent fewer than in 2010 and even worse than the 445,100 total in 2009.
People aren’t demanding single-family homes, for all the usual reasons: a lackluster job market, stagnant wages, banks that don’t want to lend. But Americans are demanding rental housing, both by choice and necessity, and developers are obliging them. Multifamily starts drove up the November total with a 25 percent increase to an annualized rate of 238,000 units, the highest level for that kind of housing since September 2008.
House tells Senate to fly a kite re: payroll tax cut
As expected, on Tuesday the U.S. House of Representatives declined to play ball with the U.S. Senate, and so it looks like the payroll tax cut enacted earlier this year will expire with the year, as scheduled. Besides the cut, which took 2 percentage points off of the payroll taxes that fund Social Security, unemployment benefits will peter out for about 700,000 people in mid-January and 2.2 million more by mid-February, and Medicare payments will drop.
Naturally a good deal of political hay is being made around the Dec. 31 expiration date, with the usual mutual charges of obstinacy being leveled between and (in the Republican case) within the parties. But Congress will likely return to the issue after the first of the year, and very likely reauthorize the cuts retroactively. How long Congress takes to re-authorize the tax cut and the other measures is an open question, but it seems that the longer the legislature dithers, the greater the impact on certain parts of the economy.
For each worker affected—160 million or so—each paycheck will be smaller starting in January, with the neighborhood of $40 often given as an average. Not a vast amount, but over time the difference will begin to add up, perhaps discouraging consumption later in the year. The end of unemployment benefits for millions of people, on the other hand, could push more of the unemployed into out-and-out poverty. However, if Congress acts in a few weeks, it might even inspire a consumption bump as retroactive cuts take effect.
Investors interested in European bonds again, for now
It was time on Tuesday for another round of optimism about the euro. All it took was the yields on 10-year Italian and Spanish government bonds to drop to 6.63 percent and 5.12 percent respectively. Such debt had been trading for more than 7 percent, heights that investors agreed couldn’t be sustained for long.
On Wednesday, the European Central Bank will start offering banks the first of its unlimited three-year loans. They’re expected to be popular, in part because European governments are nagging European banks about how good it would be for everybody if they took the ECB up on the offer. Demand might be as much as 600 billion euros ($780 billion), and if that’s the case, there will be optimism in the euro-zone for a while longer, until the next unsettling event causes another mini-panic.
Wall Street, which had been drifting along in a downward malaise in recent sessions, spiked upward on Tuesday on the latest tidbit of positive news from Europe, as well as the relatively good housing numbers. The Dow Jones Industrial Average gained 337.32 points, or 2.87 percent, while the S&P 500 was up 2.98 percent and the Nasdaq advanced 3.19 percent.