The US Building Permits Report: Market Expects Decline in Construction Activity

The U.S. Building Permits Report: Market Expects Decline in Construction Activity

The Census Bureau will release the latest Building Permits today at 12:30 GMT, with estimates looking for a slight decrease to 1.430 million permits from 1.446 million in the prior month. Building permits represent the number of permits issued for new construction projects and are vital to gauge the real estate marketplace. 

A fall in building permits would signal a slowing in construction and, hence, to weaker demand for new projects. If the estimated decrease in building permits by millions actually comes into force, it could mean that real estate markets are cooling off. This would be reflected as a negative leading indicator for economic growth. The prospects of lower economic activity can dampen market sentiment and would be dollar-negative.

On the other hand, if the real number comes closer to or just below the last month's level, that may be a sign that the construction sector is, in fact, stabilizing. In this case, the effect on the USD might be limited, exactly because such data would be taken by investors as a mild correction of froth, rather than a major dip. This scenario would at least help keep a level of confidence in the wider economic outlook and give some support to the dollar.

As the release date approaches, the financial markets will be more vigilant over the Building Permits data than ever before, waiting for a glimpse of the real estate market trend or the changing of a trend. The implications derived from this report, therefore, are still one that can turn not only the market expectations but entire economic forecasts, influencing the behavior of other investors and the performance of the US dollar.

The U.S. housing starts data due today

According to some of the estimates, the Housing Starts by the Census Bureau will rise to 1.423 million against 1 million starts for the previous month's 1.353 million. This indicator is the count of the newly started residential construction projects in a particular month and indicates the short-term trend of the construction industry. If the data is greater than or equal to the forecasted increase then that might mean positive changes to the housing market and construction activity. Presumably this potential growth may be viewed as beneficial for ‘the aggregate economy,’ and thus help to advance the USD. However, if the actual figure depicts a below expectation as compared to the increase expected then it might be indicating a slow rate of new construction which affects the investor sentiment and gives a caution signal to USD. The data will be closely monitored through the financial markets nearer to the release with the emphasis placed on the indicators pointing out the future direction in the housing segment and consequently have an impact on the overall economy.