U.S. Economy Gets Some Out-of-Season Cheer

November is usually a time for both home builders and manufacturers to ease up. But not this year.

The Commerce Department on Thursday reported that construction was started last month on a seasonally adjusted 1.68 million homes at an annual rate. That was well in excess of the 1.57 million economists were looking for, and was up 11.8% from a month earlier. Single-family housing starts, which exclude the often lumpy effects of apartment-building construction, rose 11.3%.

Also on Thursday, the Federal Reserve reported that industrial production—the combined output of U.S. factories, utilities and mines—rose a seasonally adjusted 0.5% in November from October. That was a little shy of the 0.6% gain economists were looking for, but factor in an upward revision to the October data and the level of production was a bit higher than forecast. Manufacturing production, the element of the report economists watch most closely, rose 0.7%.

It needs to be noted that both the housing and the industrial production data are adjusted for seasonal swings. The unadjusted Commerce Department figures show that housing starts rose just 0.5% last month. And the unadjusted Fed figures show manufacturing production edged down 0.2%.

Put another way, the seasonal factors used to adjust the construction figures anticipate a significant turn lower in housing starts in November, but starts rose instead. And the factors used to adjust industrial production anticipate a cooling in manufacturing activity, but manufacturing didn’t cool much at all.

This could be an indication that both home builders and manufacturers, which have been struggling to meet demand as a result of supply-chain problems and hiring difficulties, didn’t experience their typical November slowdowns. And so the fact that seasonal adjustment boosted the housing start and manufacturing production figures shouldn’t be seen as an indication that things are weaker than they seem. Rather, demand that couldn’t be met in previous months is getting met now.

And this could be just the start. The seasonal factors applied to both housing starts and manufacturing production anticipate further declines in December. And following the holidays, the economy in general tends to slow markedly. But perhaps this year, with all the difficulties businesses have had meeting demand, that won’t be as true as in the past. In the first quarter of this year, the Commerce Department’s seasonal factors anticipated a 5.1% decline in gross domestic product from the prior quarter—an 18.9% contraction at an annual rate. Since GDP contracted at a mere 13.8% annual rate, that translated into a first quarter GDP gain of 6.3%

If businesses spend the winter working to catch up with demand that they haven’t yet met, GDP growth in the coming quarter could look even better than that.

The Federal Reserve says it will accelerate the wind-down of its bond-buying program, the biggest step the central bank has taken in reversing its pandemic-era stimulus. Here’s how tapering works, and why it sends markets on edge. Photo illustration: Adele Morgan/WSJ

Write to Justin Lahart at [email protected]

Appeared in the December 17, 2021, print edition as ‘U.S. Economy Gets Some Cheer.’