According to the National Association of Manufacturers’ (NAM) Monday Economic Report for this week, the Small Business Optimism Index decreased from 91.9 in December to 89.9 in January. Overall, small business owners express anxiety about the economy, with sales and earnings expectations remaining weak. While hiring has cooled capital spending plans remained solid despite uncertainties in the outlook. The “single most important problem” was the difficulty in finding enough qualified labor (21%), followed closely by inflation (20%).

New housing starts dropped 14.8% from 1,562,000 units at the annual rate in December to 1,331,000 units in January. Single-family housing starts dropped 4.7% from 1,054,000 units to 1,004,000 units, while new multifamily residential construction plummeted 35.6% from 508,000 units to 327,000 units.

New housing permits—a proxy for future residential construction—decreased 1.5% from an annualized 1,493,000 units in December to 1,470,000 units in January. Single-family housing permits, however, rose for the 12th consecutive month, up 1.6% from 999,000 units to 1,015,000 units – the highest since May 2022. In total, housing permitting has risen 8.6% YoY, with single-family permitting soaring 35.7%.

Homebuilder sentiment continued to improve in February, rising for the third straight month and buoyed by more affordable mortgage rates, according to the National Association of Home Builders. The Housing Market Index rose from 44 in January to 48 in February. With rates dropping sharply since peaking in late October, there is hope for stronger demand among potential homebuyers, but the housing market remains challenged for now. Affordability has been a problem for would-be buyers over the past few years, and builders continue to cite other challenges, including the need for more workers and the lack of available lots. In February, the index of current activity for single-family homes increased from 48 to 52, while the index for expected single-family sales jumped from 57 to 60. At the same time, the traffic of potential buyers remained very weak despite increasing from 29 to 33. The potential buyers traffic index has been below 50 every month since May 2022.