The US construction sector meets expectations


In April, I assumed that this year construction sector could become the locomotive that would drag along the entire US economy. My assumption was based on rapid growth in the number of transactions in the housing market, observed at the beginning of the year.

Since then, hopes for the construction sector had their ups and downs. On the one hand, the number of permits issued for new construction in spring remained low, but on the other, the number of housing starts in April reached new post-crisis highs. Another example: in June existing home sales exceeded forecasts, although new home sales, on the contrary, fell short.

But, nevertheless, the overall picture of the US construction sector in 2015 seems mostly positive, judging by the recent statistics for the month of July, released last week. Existing home sales came in higher than market expectations. Housing starts registered the highest level since October 2007 – 1.21 million homes per year (see the Chart). Thus, the forecast of Wall Street Journal economists that the number of housing starts in 2015 will grow to 1.22 million homes a year is about to come true.


However, the US construction sector still has room for expansion. Even if we don’t take 2005 as target, when the number of housing starts exceeded 2 million homes a year, we can recall the second half of the 1990s, when the indicator moved in the range of 1.25 – 1.75 million. This solid reserve for growth gives hope that the US construction sector will keep stimulating the recovery of the world’s largest economy.

Positive signals from the housing market are very important now, when the leadership of the Federal Reserve is mulling over the rate hike in September. Since the last meeting the prospects for US exports have deteriorated because of devaluation of the Chinese yuan, which dampened the competitiveness of US manufacturers in the global market. So, the role of domestic demand has become even more important for the stable growth of the US economy. And the latest data from the construction sector may indicate that the national economy has significant potential for the development using domestic sources. But will it convince the Fed to tighten monetary policy at its next meeting in September?..


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About Author

I have been friend with currency market since 2006. I hope that this friendship is not only useful to me, because over the years I have repeatedly provided analytical services to various companies and media outlets. I love fundamental analysis. Every day, I am convinced that the statistics is not boring numbers but fascinating reading, which, moreover, can predict the future. Technical analysis is also not neglected, especially as my hobby - finding effective algorithms for automated trading systems.