U.S. residential construction likely to contribute to Q2 growth at a faster pace

U.S. housing starts fell in May, a more-than-expected 11.1% in the month, to 1,036,000 units annualized. Still, this is not a knock-me-over-with-a-feather shock given that April starts surged at their fastest pace in over 25 years (or since January 1990), so some giveback was to be expected. 

The revisions to the prior two months were upward....April is now coming in at 1,165,000 units annualized (revised up 2.6%), the highest since 2007, and March's level was revised up over 1% to 954,000 units. So far in Q2, starts are up 12½% from the weak first quarter, which is very encouraging. 

Equally, if not more encouraging, were building permits. They are a good indication of future starts (one needs a permit before breaking ground) and permits were unexpectedly strong in May. They actually surged 11.8% in the month (+25.4% y/y), which is on top of April's already-impressive 9.8% gain, to 1,275,00 units a.r., the highest since the summer of 2007. 

"Data points to stronger residential construction activity ahead. Maybe there was something to that latest 5 point jump in June homebuilder confidence." said BMO Capital Markets