U.S. Building Permits

Let’s look at how the Fed’s third round of quantitative easing could affect building permits and why Wednesday’s building permits could be the highest since 2008.

Building permits are permits taken out for the purpose of excavation. When released, the numbers are annualized (the monthly number multiplied by 12).

High building permits are excellent for an economy because they don’t only signify new buildings, they signify new jobs. If a school, factory, dentist office, hospital, or grocery store is being built, that means new jobs are produced.

At 8:30am Wednesday morning we could see the highest number of building permits since 2008. Before we look into that more extensively, let’s look at the implications QE3 could have on building permits in the United States.

QE3 and Building Permits

QE3’s buying of “additional agency mortgage-backed securities at a pace of $40 billion per month” puts A LOT of cash into bank’s Fed accounts. So what do they do with the money heaps?

With bundles of Benjamin’s setting on the conference table at the bank head quarters (figuratively speaking), it has to be an exciting day for bank executives. After jumping up and down, laughing, high-fiving, and drinking some root beer, they sit down at the conference table.

As the commotion settles, you can hear cricket’s chirp as exuberant laughing reduces into awkward smirks.

Mr. Banks, the top dog says “So, now what?”. His assistant and the rest of the room look at him with a blank stare.

After hours of contemplation within their office on how to make a return on investment with their fat bank account, they decide they ought to lend their money.

The ocean of money encourages and compels banks to loan their money.

The Fed hopes that people will take out loans to start businesses, which will create jobs, which will theoretically stimulate the economy. That’s the plan, will it work? Chances are, it won’t be effective to the degree the Fed hopes. I come to that conclusion since QE1 and QE2 didn’t show much success. Throwing money at a situation doesn’t usually solve it, it just makes the banks rich. This is a problem you come across when governments try to provide instead of protect. None the less, I wouldn’t be surprised if there was a spike in building permits in the coming months.

Highest Since 2008

Last month’s building permits dropped slightly compared to August’s release. August’s release was the highest since 2008 and October’s could pass it up.

Since the beginning of this month U.S. news has seemed infallible. Some speculate it is in result of the upcoming U.S. elections. These are some of the latest reports:

Consumer Sentiment = highest since 2007.
Jobless Claims = 4 year low.
7.8% unemployment = Lowest in almost 4 years.

With all the positive expectation in the air, it’s a possibility that building permits will ride that positive wave and also meet new highs (higher than the new highs they already met in August).

As all of this U.S. Dollar news is digested and mixed with the election results, coverage, and implications, we could likely see a strong dollar this quarter.

Maybe not as strong against the Euro as other currencies. The Euro is looking potentially strong too as the pressure rises for Spain to ask for a bailout. Not to mention the Greece situation.

The European Union (EU) summit is approaching which could shed light on the Spanish topic as well as others. Thursday and Friday leaders from the EU will meet in Brussels. To read more about that, here is my article from yesterday: European Union Council Summit.


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Update from October 17th:

Building permits were much higher than expected. The highest since the summer of 2008 before the financial crisis. The report hit 0.89M when the forecast was 0.81M.

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