Market Overview

December Housing Starts Fall From November But Cap Best Year Since 2007

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The Commerce Department reported on Friday that housing starts fell sharply in December, marking the largest percentage decline since April.

December housing starts fell 9.8 percent to a seasonally adjusted annual pace of 999,000, beating analyst expectations of 0.990M. Groundbreaking for single-family homes fell seven percent to a 667,000-unit pace for the month. The housing starts figure for the prior month of November was 1.107M, the highest level of the year.

Starts for 2013 in total reached 923,400, the highest annual figure since 2007, reflecting a sustained recovery in the U.S. housing market. In 2007 housing starts reached almost 1.4 million.

Meanwhile, applications for building permits, an indicator of future demand, fell three percent in December to a seasonally-adjusted annual rate of 986,000, marking the second consecutive month of declines. The figure missed analyst expectations of 1.015M.

Permits in November had increased 23.1 percent, reaching 1.017M, the highest level since 2008. For the year of 2013, permits rose 17.5 percent to an average of 974,700-units.

Later on Friday morning the Federal Reserve released Industrial Production and Capacity Utilization data. Industrial Production month over month rose 0.3 percent in line with analyst expectations. The prior month's figure was revised lower to 0.1 percent. The Capacity Utilization Rate rose to 79.2 percent beating analyst expectations of 79.1 percent.

Also on Friday, the University of Michigan released the Michigan Consumer Sentiment figure which missed expectations of 83.5, coming in at 80.4. The final U.S. figure for the day, JOLTs Job Openings, ended the week on a positive note, coming in at 4.00M, beating analyst expectations of 3.97M.

The U.S. dollar index traded higher in the wake of the housing starts report. The dollar has been trading in a sideways band since early November but the positive economic data out of the U.S. this week has helped boost it upwards towards the top of the range.

U.S. Dollar Index Daily Chart

Looking at the U.S. Dollar Index daily chart we can see that the 200 period simple moving average lies close to the upper trendline of the sideways channel, suggesting a confluence of potential resistance in the area of 81.47. A breakout above this level could see substantial upside follow through in price.

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