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The U.S. Economy Improved in October, Housing Starts and Building Permits Data Show

By Glenford S. Robinson

The U.S. economy continues to show signs of improvement. It has been the third week in a row that we have seen positive economic numbers. This week’s offering provides us with positive releases such as the Housing Starts, Building Permits, Existing Home Sales, Manufacturing PMI, Services PMI, and Consumer Sentiment Reports. In fact, all those economic indicators mentioned provided data that came in better than previous readings. As a result of these positive economic numbers, the stock market and the U.S. Dollar have responded favorably, trending higher for the week.

Wall Street closed higher on Friday, November 22, 2019 after President Trump said he was very close to a trade deal with China. Meanwhile, Chinese President Xi Jinping said China wants to agree on a trade deal with the U.S. but will not back down from a fight.

On the Brexit front, news out of the UK pointed out that the Tories continues to lead in the poles against Labour, signaling that Brexit could become a reality, come December 12th after Johnson’s conservative party takes the trophy.

Bitcoin appears as if it will follow a similar course in 2019 as it did in 2018 from November to December of that year. The World’s leading cryptocurrency has fallen on hard times, giving up gains of under $14,000 per coin achieved on June 26, 2019. However, since then, BTC have fallen hard, hovering around $6,566.34 as of writing. The coin could be down, but not out; so never count out a sleeping giant. At any moment, however, the coin could explode up the charts, but it could also continue to drop like a brick. Your call. In fact, Bitcoin’s recent fall from grace could very well be caused from the increasing strength of the USD because Bitcoin is pegged against the USD like other major currencies.  For Traders who thinks technically, a falling wedge has been spotted on the Bitcoin one-month chart, which implies that a massive reversal to the upside could be lurking, even though the digital coin has trended lower recently.

When the USD exhibits strength, all other currencies will show weakness, and now the USD shows strength. Gold trades against the USD, so when the USD exhibits strength, the price of Gold suffers and vise-versa. In fact, Gold prices have languished as of late, falling from a daily high of $1,475 on Friday to $1,457 as of writing and that could also be due to the increasing strength of the USD, and the U.S. economy.

Let’s delve into some Macro Economics by first talking about the Housing Starts Report for October. The Housing Starts Report measures changes in the amount of new privately-owned constructions underway. The construction industry happens to be the first industry to go into a recession when economic growth declines, but will be the first industry to recover when the economy improves. The report thus, plays the role of a leading economic indicator.

A higher than expected Housing Starts reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD. The current Housing Starts number released on Tuesday, November 19, 2019 at 8:30 AM, New York Time, came in at 1.314 Million, beating the previous reading of 1.266 Million, while missing forecast of 1.320 Million, which still registers as a positive from the previous reading, a 3.8% mark above the revised September estimate of 1.266 Million, a +8.7% increase. This result reflects a positive improvement for the U.S. economy and bullish sentiment for the USD.

The stock market responded positively by moving higher for the week and the USD trended higher against most major currencies. The US Census Bureau and the Department of Housing and Urban Development jointly released the Housing Starts Report.

The Building Permits Report for October also came in positive, beating forecasts of 1.385 Million and a previous reading of 1.391 Million by posting an astounding reading of 1.461 Million; The Report measures changes in the total number of new building permits issued by the government. Building permits indicate the level of demand in the housing market.

A higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD. The fact that the Building Permits Report number came in above forecast and beat the previous reading, tells us that high demand for housing, currently exists in the market, another positive sign for the U.S. economy and the USD. The U.S. Census Bureau and the Department of Housing and Urban Development jointly released the Building Permits Report on Tuesday, November 19, 2019 at 8:30 AM, New York Time.

Housing Completions of privately-owned housing in October saw an 11.7% increase above the revised September estimate of 1.139 Million and an 11.7% increase, above the October 2018 mark of 897,000 units.

According to the U.S. Census Bureau, Month-to-month changes in seasonally adjusted statistics often show irregular movements; so, it may take three months to fully establish a definite trend for building permit authorizations, six months for total housing starts, and six months for total housing completion. Regardless of possible statistical errors, the data shows positive signs of U.S. economic growth.

The Existing Home Sales Report measures changes in the annualized number of existing residential buildings sold during the previous months. This Report serves as a gauge in the strength of the U.S. housing market by providing key information as to the overall health of the economy. 

A higher than expected reading of the Existing Home Sales Report should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD.  The current Existing Home Sales Report beat previous readings of 5.36 Million, coming in at 5.46 Million, barely missing forecasts of 5.47 Million. Yet, another economic indicator giving positive numbers for October. The better-than previous reading shows that the economy has done much better in October than it did in September, another good sign that the economy is improving. The National Association of Realtors released the Existing Homes Sales Report on Thursday, November, 21, 2019 at 10:00 AM, New York Time.

Now comes the Manufacturing Purchasing Managers’ Index (PMI), which measures activity levels of purchasing managers in the manufacturing sector. A reading above 50 indicates expansion in the sector, while a reading below 50 indicates contraction. Traders watch the Manufacturing PMI survey closely because purchasing managers control the ordering of supplies for their companies, so they know firsthand, the performance and health of their companies, which can be a leading indicator of overall economic health and performance.

A higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD.

The IHS Markit’s Manufacturing PMI released on Friday, November 22, 2019 at 9:45 AM, New York Time, beats forecasts of 51.5 by posting a welcomed reading of 52.2, and beating out a previous reading of 51.3. The fact that so many economic indicators including the Manufacturing PMI, continue to deliver positive results, signals that the U.S. economy could very well be on the rebound. In fact, the economy was already riding in the expansion phase of the business cycle since 2009, but had slowed down dramatically in recent months. But now, seems to have picked-up-steam and heading into the right direction. The recent interest rate cuts by the Federal Reserve and the use of other monetary policy tools by the agency, definitely seem to be working.

In fact, this past Friday, the New York Federal Reserve Bank added even more money to the financial system, adding $80.6 billion in temporary liquidity, through the Repo market and through the purchasing of Treasury and Mortgage securities from eligible banks, in order to quell volatility and stabilize the financial system. Eligible banks provided $64.4 billion in Treasury securities and $16.2 billion in mortgage securities. In fact, without hesitation, the central bank took all securities that was offered.

The Services PMI released by Markit Economics, provides data based on surveys of over 400 executives in private sector service companies. The surveys cover information on transport & communication, financial intermediaries, business & personal services, computing & IT, and hotels & restaurants.

A Services PMI reading of 50 means no change since the previous month, a reading above 50 signals improvement, and a reading below 50 indicates a decline in economic activity. A higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD. The Services PMI reading for November released on Friday, November 22, 2019 at 9:45 AM, New York Time, beats forecasts of 51.0 and a previous reading of 50.6 by posting a reading of 51.6. The vastly improved services PMI shows that the U.S. economy has improved.

The University of Michigan Consumer Sentiment Index rates consumer’s confidence about the current and future conditions or prospects of the economy. The index consists of two versions, released two weeks apart, the preliminary and the revised version. Preliminary data tends to be more impactful than the revised data, and the reading comes from a compilation survey of around 500 consumers.

A higher than expected reading of the Consumer Sentiment Report should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD.

The Consumer Sentiment Index for November released on Friday, November 22, 2019 at 10:00 AM, beats forecasts of 95.7 and a previous reading of 95.5 by posting a reading of 96.8. This reading confirms that the U.S. economy has indeed improved.

All the economic indicators reviewed above came in better than previous readings, some even beating expectations. This revelation tells us that the U.S. economy has begun to improve. The stock market and the USD have begun to show this economic improvement. The price of Gold and Bitcoin have dropped since the USD began to gain increased strength.   

The U.S. Economy Improved in October, Housing Starts and Building Permits Show

Disclosure

The Mstardom Finance trading team currently trades the EUR/USD currency pair, utilizing long, short, and hedging strategies. 

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