US Economy: Housing, factory declines probably eased
The housing and manufacturing declines that pushed the U.S. into the worst recession since the 1930s probably eased further, putting an economic recovery within reach, economists said reports this week will show.
Builders broke ground on new homes in July at the fastest pace in eight months, according to the median of 60 forecasts in a Bloomberg News survey ahead of a Commerce Department report Aug. 18. Other figures may show sales of existing homes climbed, manufacturing in the Northeast improved and the economic outlook strengthened.
“There’s broad enough stabilization in the economy to get a decent rebound,” said John Herrmann, president of Herrmann Forecasting in Summit, New Jersey. “We’re seeing multiple signs of a bottom in the housing market and by this time next year, homebuilding should be adding to growth.”
The reports signal that government efforts to stem the slide, including credits for first-time homebuyers and cash- for-clunkers, are starting to take hold. A report that may show more than half a million workers filed claims for unemployment benefits last week will serve as a reminder that mounting job losses are likely to restrain consumer spending and growth.
Housing starts rose 2.7 percent to an annual rate of 598,000, according to economists surveyed. Building permits, a sign of future construction and a component of the index of leading economic indicators, likely rose to a 575,000 pace, the highest level since November.
Toll Brothers Inc., the largest U.S. luxury homebuilder, last week reported third-quarter revenue that exceeded analysts’ estimates. While sales fell 42 percent, new home contracts rose over the year-earlier quarter for the first time since 2005, the Horsham, Pennsylvania-based company said.
“Although some of our markets are still stuck in the mud, many are improving,” Chairman and Chief Executive Officer Robert Toll said on an Aug. 12 conference call. “It does feel as if the fence sitters are looking for reasons to jump in on the side of buying.”
The Standard & Poor’s homebuilder supercomposite index, which includes Toll, has gained 31 percent since the beginning of July compared with a 9.2 percent increase for the S&P 500.
Tomorrow, figures from the National Association of Home Builders/Wells Fargo may show an index of builder confidence climbed in August to the highest reading in more than a year, according to the survey.
Sales of previously owned homes probably rose to a 10- month high annual rate of 5 million, according to the survey median. The National Association of Realtors will report the figures on Aug. 21.
Government steps to shore up housing have included offering lenders incentives to modify the terms of delinquent mortgages, Fed purchases of mortgage-backed securities to free up funding for home loans, and an $8,000 tax credit for first- time home buyers for transactions completed before Dec. 1.
Foreclosures remain a threat. About $3.4 trillion worth of houses are at risk of default because the owners owe more than the property is worth, Santa Ana, California-based First American CoreLogic said last week.
At the same time, price declines, driven largely by foreclosures, are helping lift demand. Homeowners cut asking prices by $27.8 billion in the year through Aug. 1, according to Trulia Inc., a San Francisco-based real estate data provider. Some of the biggest reductions were in Nevada and Florida, states hardest hit by the property slump.
Reports from regional Fed banks may show manufacturing is also stabilizing. The Fed Bank of New York’s Empire State index, due tomorrow, is projected to show that manufacturing in the state expanded in August for the first time in more than a year. On Aug. 20, figures from the Philadelphia Fed may show the region’s factories contracted at the slowest pace since September, the last time it expanded.
The same day, the New York-based Conference Board may report its leading indicators index, a measure of the economy’s likely path over the next three to six months, rose in July for the fourth consecutive month, economists said. It would be the longest stretch of gains since 2004.
Finally, the Labor Department on Aug. 20 may report that 550,000 workers filed jobless claims last week compared with 558,000 the prior week. While down from the first half of the year, claims remain higher than the 350,000 per week filed on average during the six-year expansion that ended in 2007.