Construction activity reflects a mixed outlook for recession

The residential construction market is giving off conflicting signals about whether the nation is heading toward a downturn, according to a new BuildFax report.

Single-family authorizations are continuing to drop, which suggests a weakening in the economy, but existing home maintenance activity is rising, suggesting relative strength.

"As declines across key economic indicators hint at an economic slump, talk of a potential recession has amplified," BuildFax CEO Holly Tachovsky said in a press release. "It's difficult to definitively say whether one is imminent. However, heightened tensions surrounding a probable recession have put increased scrutiny on the declining single-family housing authorization index, which has a high correlation to historical recessions. The potential shift in residential housing toward a buyer's market is one example of the market reacting in a tangible way to these declines.

"On the other hand, existing housing maintenance — a gauge of consumer confidence — is now rising. This suggests that U.S. homeowners have enough confidence in the market to embark on substantial property updates," Tachovsky said.

Single-family authorizations for new construction fell 1.06% in August from July and 4.17% on a year-over-year basis. The trailing three-month outlook (June to August 2019) decreased 2.29%, marking three straight quarters of slowing single-family housing authorizations, according to the BuildFax Housing Health report.

On the other hand, existing housing maintenance volume was up by 1% over August 2018; and existing home remodeling volume — a subset that includes renovations, additions and alternations — rose 1.16% from the previous year. It is the second consecutive month and the third in the last five where maintenance activity rose, BuildFax noted.

However, maintenance activity normally rises in areas affected by natural disasters, and that may play a role in the overall increase.

That is particularly true for North Carolina, where coastal areas were affected by Hurricane Dorian. Following the severe convective storms that struck there in the spring of 2018, maintenance activity rose 20.32% between April and May of last year; and after Hurricane Florence made landfall in August 2018, maintenance activity rose 34.84% over the course of the following two months.

Now that 12 months have passed, North Carolina's maintenance levels are still 17.84% higher than they were on average in 2017 and 2018; and because of the impact of Dorian, elevated levels of maintenance activity in North Carolina are likely to continue for the foreseeable future.