What today's weak housing data says about the economy

In yet another worrying sign for the economy, new home construction increased just 0.9 percent last month, the Commerce Department announced this morning. The feds put the new seasonally adjusted annual rate at 891,000 new housing units this year, much lower than expectations that August construction would pick up the pace to an annual rate of 917,000 new housing units.

August's numbers — which are still an 11 percent increase over August 2012 — showed a wide gap between construction on multi-family residences and single-family homes. The rate for multi-family homes dropped 11.1 percent from July, while the rate for single-family homes rose 7 percent.

This "housing starts" data is a closely watched economic indicator that refers to the number of new homes or housing units on which construction begins in a given period. Because the numbers in any one month are closely tied to weather, the feds smooth the data with statistical formulas to reach a seasonally adjusted figure — hence the annual rate number.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

The housing market, of course, is a huge driver of the U.S. economy. When lots of homes are being built, more construction jobs are filled, and sectors like raw materials, mortgage financing, manufacturing, and even the auto industry (builders buy trucks to transport materials) reap the rewards.

The housing recovery seemed right on track for the last four months. But now, August's data represents a "pause in momentum," as an economist from the National Association of Home Builders called it in USA Today.

The reason for that pause? It's largely about rising mortgage interest rates, which have spiked by more than a full percentage point in a few short months. For that you can probably thank Ben Bernanke, who has been teasing for months that he'll begin a round of "tapering" — essentially, cutting back on the Fed's $85 billion a month stimulus plan, which has helped to encourage borrowing. With the Fed's stimulus on the verge of winding down, interest rates are starting to rise, and now the construction industry is grappling with the consequences.

In just a couple hours, Ben Bernanke and his friends at the Fed are expected to finally announce the first round of tapering. Stay tuned for the inevitable parsing of Bernanke's words, which will affect interest rates, housing starts, and the rest of the economy.