The Building Permits Survey (BPS) is an economic indicator that provides insights into the construction industry’s health and future growth prospects.
The survey measures the number of building permits issued for new privately-owned housing units.
By tracking the number of building permits issued for new construction projects, the BPS sheds light on the overall demand for construction services and the general outlook for the economy.
Let’s explore the BPS, its methodology, its significance as an economic indicator, and its potential impact on various sectors, including housing, construction, and financial markets.
What is the Building Permits Survey (BPS)?
The Building Permits Survey (BPS) is a monthly survey conducted by the U.S. Census Bureau.
The survey tracks the number of building permits issued by local governments for new privately-owned residential construction.
Building permits are required before the commencement of construction activities, and their issuance reflects the intent of builders and developers to start new projects.
By monitoring the trends in building permit issuance, the BPS provides valuable information about the construction industry’s direction and the overall economic climate.
Methodology and Data Collection
The BPS collects data from a sample of local governments across the country, covering both urban and rural areas.
The sample is designed to be representative of the broader population, ensuring that the survey accurately reflects nationwide trends in building permit activity.
The data collected includes information on the number of permits issued, the type of construction projects (residential, non-residential, or alterations and additions), and the estimated value of the projects.
Significance as an Economic Indicator
The Building Permits Survey serves as an essential economic indicator for several reasons:
- Leading indicator: As a leading indicator, the BPS provides early signals about the construction industry’s future direction and the economy as a whole. An increase in building permit issuance suggests growing demand for construction services and a potential expansion in the industry, while a decline may indicate a slowdown or contraction in the sector.
- Housing market trends: The BPS is particularly useful in identifying trends in the housing market, as a significant portion of building permits is issued for new residential construction projects. An increase in residential building permits can signal a healthy housing market, with rising demand and potential price appreciation. Conversely, a decline in residential building permits may suggest a weakening housing market, with lower demand and potential price depreciation.
- Employment and economic growth: The construction industry is a significant employer and contributor to economic growth. An increase in building permit issuance can indicate job creation and economic expansion, while a decline may signal job losses and a potential slowdown in economic growth.
- Investment opportunities: For investors, the BPS provides valuable insights into the construction industry’s health and the potential investment opportunities in related sectors, such as real estate, construction materials, and financial services.
Why should currency traders care about the Building Permits Survey?
Inflation expectations!
The BPS can influence inflation expectations, as higher demand for construction services and a growing economy may lead to increased inflationary pressures.
Central banks often respond to rising inflation by raising interest rates, which can result in currency appreciation.
Conversely, a slowdown in the construction industry and lower inflation expectations may lead to lower interest rates and currency depreciation.
Impact on Various Sectors
The Building Permits Survey has implications for several sectors, including:
- Housing: Trends in residential building permits can influence the housing market, affecting home prices, housing supply, and demand dynamics.
- Construction: The BPS directly impacts the construction industry, as an increase in building permits signals higher demand for construction services, while a decline may indicate a slowdown in the sector.
- Financial markets: The BPS can influence financial markets, as trends in building permit issuance can affect investor sentiment and expectations about economic growth, interest rates, and inflation. This, in turn, can impact stock prices, bond yields, and currency values.
Summary
The Building Permits Survey is a critical economic indicator that provides valuable insights into the construction industry’s health and the overall economic climate.
By tracking building permit issuance trends, the BPS offers early signals about the direction of the construction industry, the housing market, and the broader economy.