Tuesday, May 12, 2015

US Housing: Breaking Ground? (excerpt)

Many years ago, before China emerged, the price of copper was driven mostly by demand from the US housing industry. Could it be that US housing starts are taking off, which is why copper is firming? Let’s review some of the related indicators:

(1) Employment. Residential construction payrolls rose 23,600 during April. That was the best monthly increase since the start of the current housing expansion. However, that followed a decline of 1,800 during March, the first decrease since May 2012. Then again, total residential construction employment rose to 2.45 million, the highest since January 2009.

(2) Railcar loadings. On the other hand, railcar loadings of lumber and wood products are consistent with the current subdued pace of housing starts.

(3) Lumber prices. While both are volatile, there is a decent correlation between the nearby futures price of lumber and the S&P 500 Homebuilding stock price index. I have found that an average of the two is highly correlated with housing starts. The average is down 14.4% ytd.

Today's Morning Briefing: Breaking Bad? (1) China’s stock market turns volatile as P/Es surge. (2) The “insanity” trade in China. (3) PBOC warns about too much debt as it cuts interest rates. (4) China suffering from too much capacity, too much debt, too much deflation, too much pollution, and too many seniors. (5) Professor Copper is bullish on China and bearish on bonds. (6) Is housing turning up or down? (7) Payrolls say “up,” while lumber futures say “down.” (8) Brexit and Grexit? (More for subscribers.)

No comments: