Home Blogs Chemicals and the Economy US housing starts rise 3.6%

US housing starts rise 3.6%

Chemical companies, Consumer demand, Economic growth
By Paul Hodges on 19-Jul-2009
Housing permits Jul09.jpg

The blog is rather pleased with the performance of its new Boom/Gloom Index©, as financial markets continue to respond positively to any suggestion of “good news”.

The Index is based on Ben Graham’s famous concept that markets are:

• A voting machine in the short-term but
• A weighing machine in the long-term

It is therefore meant to identify whether positive or negative sentiment is driving short-term performance. And clearly, market sentiment is indeed still remarkably positive, in spite of the fact that there is no sign of any real improvement in the underlying fundamental position.

One example of the continuing influence of positive short-term sentiment can be seen in the positive reaction to the news that US housing starts rose 3.6% in June to an annualised rate of 582k. Yet as the above chart from the American Chemistry Council shows, the long-term fundamentals still remain dreadful:

• Last month’s starts were 46% down on June 2008 levels, and were worth just $9.3bn in terms of chemicals sales (each house uses c$16k of chemicals) on an annualised basis.
• This compares with sales worth $35bn of chemicals during the boom period, when starts were running at a 2.2 million level in 2006/7.

The blog is very mindful of Keynes’ insight that “markets can remain irrational for longer than most investors can remain solvent”. It will therefore be keeping a close eye on the Boom/Gloom Index©, to identify when today’s positive sentiment starts to wane.