The Housing Starts and Building Permits figures came in relatively decent.
Building Permits exhibited the largest jump, going from -2% in April to +25% year-over-year in May.
The jump paints a positive picture for a summer of strong housing market activity.
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Housing Starts and Recession Starts
Here’s a look at the Housing Starts numbers overlaid with the recessions (gray bars).
The important data point in the figure is the length of time from when the Housing Starts figures initially reach the 1 million mark and when the next recession occurs.
In the 1970s, the time period was 5 years.
In the 1980s, period was 8 years.
In the 1990s, 9 years.
How Long from Today?
The average of the previous 3 is between 6 and 7 years, putting the next recession in around 2022.
What about the Fed? What Does the Connection Say There?
Housing Starts are, of course, only one factor in dating the next recession.
Here’s a look at the length of time from when the Federal Reserve initially starts raising rates and when the next recession occurs.
The average of the prior 4 tightening cycles is about 2 ¾ years, putting the next recession somewhere in the middle of summer 2018.
The wide difference between the two confirms that the U.S. economy is in a bit of a conundrum.
Many indicators are close to peak or have already surpassed prior peaks, but housing is nowhere near there.
Overall, Housing Starts surprised quite nicely on the upside, coming in at +25% over the prior year.
In looking at the long-term connection between Housing Starts and recessions, the current Housing figures may place the next U.S. economic recession somewhere in the summer of 2022.
This is based on the observation that the average length of time between when a recession starts and when Housing Starts initially cross the 1 million threshold is about 7 years.
When looking at the federal funds rate as opposed to Housing Starts, presuming the Federal Reserve raises rates in September, that would put the next recession somewhere in the summer of 2018.
This is based on the experience of a recession occurring closely after the Federal Reserve reaches its peak in tightening, on average around 2 ¾ years.
So, if you believe the relationship between the Fed and Housing Starts with the economic cycle, there’s still a while to go before we should have any concern for a recession.