US Q3 GDP tracking 2.7% after strong July housing starts

Housing starts rose 0.2% m/m in July, to 1.206mn, coming above forecast (1.09mn) and consensus expectations (1.18mn) from an upwardly revised level for June starts (1.204mn, initial: 1.174mn). Multi-family family starts fell 17.0% m/m in July, in line with expectations, given the surge in June from the expiration of a tax incentive in the Northeast region. While permits for the sector returned to their previous trend, multi-family starts remain elevated and likely have further room to fall.

"Single-family starts grew a robust 12.8% m/m in July, well above our expectation for a modest monthly improvement. The regional breakdown of starts shows similar strength. The Northeast region remains elevated (161k, previous: 222k), while the Midwest (179k, previous: 149k), South (589k, previous: 547k) and West (277k, previous: 286) all posted solid results in July", says Barclays.

Trend readings of single and multi-family starts activity show notable improvement in recent months. Construction activity is picking up across the country, which is a positive signal about the health of the US consumer and overall economy.The stronger-than-expected gain in single-family starts for July implies a stronger Q3 profile for single-family construction spending. Single-family construction accounts for about 35 percent of total residential investment.

"Thus, stronger starts and construction boosted our estimate of residential investment and added 0.1pp to our Q3 GDP tracking estimate, bringing it to 2.7%", notes Barclays.