Housing Starts Plunge as Layoffs Rise—Is the U.S. Economy Losing Its Momentum?

Housing Starts Tumble, Jobless Claims Hold Firm—What’s the Outlook for Builders and the Broader Market?

New U.S. residential construction data for May 2025 delivered a mixed signal to markets, highlighting a slowdown in housing starts but relative stability in jobless claims, reinforcing expectations of a flat-to-cautious Fed stance ahead of its next policy meeting.

Housing Starts Slump—Is the Real Estate Sector Losing Steam?

Housing starts fell sharply to a seasonally adjusted annual rate of 1.256 million in May, marking a 9.8% drop from April and a 4.6% decrease year-over-year. The weakness was most pronounced in multi-family construction, with starts for buildings with five or more units plunging to 316,000. This signals declining confidence from developers facing rising material costs and tighter financing conditions.

Single-family starts edged up slightly to 924,000—just 0.4% above April—offering minimal relief.

Building permits, a forward-looking indicator, also declined by 2% to 1.393 million, suggesting the slowdown may persist into the summer. Single-family permits dropped 2.7%, while multi-family authorizations fell to 444,000 units.

Completions Rise, But Can Builders Keep Pace?

Housing completions offered a short-term boost, rising 5.4% to 1.526 million units. Single-family completions jumped 8.1% to over 1 million units for the first time this year. While this may temporarily ease housing inventory constraints, it’s unclear if developers can maintain this momentum given the cooling in permit activity and ongoing input cost pressures.

Unemployment Claims Data Show No Immediate Stress—But Cracks Emerge

Jobless claims ticked down by 5,000 to 245,000 for the week ending June 14, with the 4-week moving average rising to 245,500—the highest since August 2023. Insured unemployment was 1.945 million, down modestly from the prior week, though the 4-week average is trending higher at 1.926 million. Layoff-driven increases in claims across states like California (+8,930), Minnesota (+4,809), and Pennsylvania (+3,939) are red flags, especially in service-heavy and logistics sectors.

Outlook: Bearish for Builders, Neutral for Broader Equities

The downturn in housing starts and permits suggests a bearish short-term outlook for homebuilder stocks and construction-linked sectors. While completions may sustain current projects, the lack of new authorizations signals limited pipeline growth. Meanwhile, labor market data remains stable enough to prevent panic but shows early signs of sector-specific stress. This dual trend supports a neutral-to-cautious outlook for broader equities and may reinforce a wait-and-see stance from the Federal Reserve.