US Housing amp Employment in the Charts

Today’s US housing and jobless data showed the best figures in five years.

Housing starts have reached 954K in December, hitting the highest since July 2008. The 100% increase from last year’s figures comprises of a 24% retracement of the decline from the all time high of 2006 to last year’s record lows. Building permits have also hit their highest level since summer 2008, reaching 905K, or a 75% increase from the 2009 lows.

Housing optimism via the sales front may be tempered by the possibility that construction activity is rising faster than sales, which may ultimately begin to weigh on housing starts. The other lingering worry is that of foreclosures. After falling by 50% from their 2010 high, foreclosures (according to Realty Trac) are up 15% from April 2012. The rebound has further to go as the backlog of delayed foreclosures is resolved.

On the jobs front, jobless claims fell 37K to reach 335K, the lowest level since January 2008. The 37K decline was the biggest in three years. Seasonal factors aside, the claims data was supported by the less-sensitive four-week average, which fell 6.7K to 359K. The figures come two weeks after non-farm payrolls rose to 155K in Dec, posting the sixth consecutive monthly figure above 100K.

The unemployment rate—the employment indicator mattering most for the Fed—is now at 7.8%, retracing 38% of the more than doubling of the rate from its 4.4% low in 2007 to the 10% high in 2009. Markets are aware the Fed is now targeting an unemployment rate of 6.5% until considering seizing its asset purchases policy. Historically, a decline from 7.8% to near 6.5% has taken about two years. But with the help of rapid momentum from other macro indicators, markets could start fretting about the Fed once the rate breaks below 7.0%. This… could take no more than 12 months.

A more disappointing figure released today, was the Philadelphia Fed business outlook survey, which dropped to -5.8 in January, from +4.6 in December. The survey has been moving in and out of positive territory since last summer, while its employment and new orders components have shown tepid improvement.

Housing and employment are both showing clear improvements, but more remains to be done. The path from current levels to a 7% unemployment or +1 million in monthly sales of existing homes will not happen in a straight line, which grants plenty of time and thought for the Fed before departing from their “all in” stance on asset purchases.