Builders Probably Started More U.S. Houses After Weather-Related Plunge

A gain in housing starts in May probably failed to make up for ground lost the prior month as U.S. homebuilders remained reluctant to ramp up projects, economists said before a report today.

Work began on 545,000 houses at an annual pace, up 4.2 percent from the prior month, according to the median estimate of 78 economists surveyed by Bloomberg News. Construction plunged 11 percent in April as flooding and tornadoes shut down building sites.

Falling real estate values and the threat that foreclosures will push prices even lower mean the construction industry will continue to lag behind other parts of the economy. Joblessness exceeding 9 percent indicates that a rebound in housing will take years to develop.

“This is just a major dampener on the growth outlook and it’s going to be with us for a while,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. “It’s very difficult for the economy to sustain growth above 3 percent without a rebound in the residential construction market.”

The Commerce Department’s report is due at 8:30 a.m. in Washington. Survey estimates ranged from 493,000 to 585,000.

Building permits decreased to a 557,000 annual pace from a 563,000 rate in April, according to the survey median.

Builder Confidence

Confidence among homebuilders plunged in June, led by a decline in the outlook for sales. The National Association of Home Builders/Wells Fargo sentiment index dropped to 13 this month from 16 in May, data from the Washington-based group showed yesterday. A measure of sales expectations for the next six months matched the lowest level on record.

Firms like Hovnanian Enterprises Inc. (HOV) are still struggling to turn a profit in the housing market. The largest homebuilder in New Jersey reported a net loss for the three months ended April 30 that was wider than analysts estimated.

Homebuilders have underperformed the broader stock market. The Standard & Poor’s Supercomposite Homebuilder Index has fallen 6.7 percent so far this year, compared with a 0.6 percent increase for the S&P 500 Index.

Sales of previously owned homes, which make up more than 90 percent of the market, fell 4 percent to a 4.85 million annual pace in May, economists surveyed by Bloomberg forecast the National Association of Realtors will report on June 21. Existing-home sales have been gaining market share from new houses due to growing demand for lower-priced distressed dwellings.

Jobless Claims

Another report today is expected to show the U.S. labor market is struggling to improve. The number of Americans applying for unemployment insurance last week probably fell to 420,000 from 427,000 the prior week, according to economists surveyed ahead of Labor Department figures due at 8:30 a.m. in Washington.

Manufacturing, the industry that helped the U.S. emerge from recession in June 2009, is showing signs of cooling as factories await supplies from Japan following the earthquake and tsunami. The Federal Reserve Bank of Philadelphia’s general economic index in June climbed to 7 from 3.9 the previous month, according to the median projection in a Bloomberg survey. The gauge is down from a 43.4 reading in March.

Figures greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The data are due at 10 a.m. New York time.

                        Bloomberg Survey

================================================================
                           Housing Building  Initial   Philly
                            Starts  Permits   Claims      Fed
                            ,000’s   ,000’s   ,000’s    Index
================================================================

Date of Release              06/16    06/16    06/16    06/16
Observation Period             May      May   11-Jun     June
----------------------------------------------------------------
Median                         545      557      420      7.0
Average                        545      557      421      7.0
High Forecast                  585      590      435     19.5
Low Forecast                   493      535      408      0.0
Number of Participants          78       55       46       54
Previous                       523      563      427      3.9
----------------------------------------------------------------
4CAST                          565      550      422      9.5
ABN Amro                       534     ---       410      6.0
Action Economics               535      560      420      9.0
Aletti Gestielle               540      560      423      3.0
Ameriprise Financial           545      580      415      8.0
Banesto                        540      553     ---       7.0
Bank of Tokyo- Mitsubishi      550      550      415      4.0
Bantleon Bank AG               550      540     ---       5.0
Barclays Capital               547     ---       420      8.0
BBVA                           532      545      422      6.0
BMO Capital Markets            549      551      420      7.0
BNP Paribas                    555     ---       420      7.0
BofA Merrill Lynch             530      555      425      6.0
Briefing.com                   540      560      425      5.0
Capital Economics              560     ---      ---      10.0
CIBC World Markets             550      535     ---      ---
Citi                           540      560      430      8.0
ClearView Economics            540      570     ---       0.0
Commerzbank AG                 520      540      430      8.0
Credit Agricole CIB            542      564     ---       8.0
Credit Suisse                  540      550      415     ---
Daiwa Securities America       530     ---      ---      ---
Danske Bank                   ---      ---      ---      10.0
DekaBank                       570      570     ---       9.0
Desjardins Group               570      585      418      9.0
Deutsche Bank Securities       540      550     ---       5.0
Deutsche Postbank AG           550     ---      ---      ---
First Trust Advisors           565     ---       420      1.8
FTN Financial                  493      550     ---      ---
Goldman, Sachs & Co.           523     ---      ---       5.0
Helaba                         550      550      425      6.0
High Frequency Economics       575      580     ---      ---
HSBC Markets                   585      590      425      9.0
Hugh Johnson Advisors          550     ---      ---       7.0
IDEAglobal                     550      545      415      8.0
IHS Global Insight             540      570     ---      ---
Informa Global Markets         530      540      435      3.5
ING Financial Markets          537      575      420      8.0
Insight Economics              550     ---       420      5.0
Intesa-SanPaulo                555      535     ---       5.0
ITG Investment Research        530     ---      ---      ---
J.P. Morgan Chase              560      560      420      6.0
Janney Montgomery Scott        530      545     ---      ---
Jefferies & Co.                570      560      420     ---
Landesbank Berlin              550      570      410     15.0
Landesbank BW                  555      560      415      9.0
Manulife Asset Management      530      555      415     ---
Maria Fiorini Ramirez          535     ---       425     ---
MET Capital Advisors           500     ---      ---      ---
MF Global                      545      557      415     10.0
Mizuho Securities              549     ---       420      4.5
Moody’s Analytics              553      558      425      9.0
Morgan Keegan & Co.            535      544     ---      ---
Morgan Stanley & Co.           535     ---      ---      ---
National Bank Financial        548     ---      ---      ---
Natixis                        540     ---      ---      ---
Nomura Securities              542      557     ---       5.6
Nord/LB                        530      550      420      5.0
OSK Group/DMG                  545     ---      ---      ---
Pierpont Securities            560     ---       425     ---
PNC Bank                       560     ---      ---      ---
Raymond James                  520      545      430     ---
RBC Capital Markets            555     ---       414      8.0
RBS Securities                 545     ---       425     ---
Scotia Capital                 560      556      430      8.0
SMBC Nikko Securities          550      560     ---      10.0
Societe Generale               554      567      408     19.5
Standard Chartered             535      550      420      4.0
State Street Global Markets    553      562      431      2.4
Stone & McCarthy Research      540      550      425      5.0
TD Securities                  550      560      415     10.0
UBS                            570      570      420      4.0
UniCredit Research             555      570     ---      ---
Union Investment               540      560     ---      ---
University of Maryland         535      555      425     12.2
Wells Fargo & Co.              570     ---      ---      ---
WestLB AG                      540      550     ---       6.8
Westpac Banking Co.            523      541     ---       5.0
Wrightson ICAP                 545      560      420      4.0
================================================================

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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