Housing Starts in U.S. Probably Increased as Progress Sustained

Builders probably began work on more new homes in March, a sign one of the bright spots of the U.S. expansion is making steady progress, economists said before a report today.

Housing starts increased to a 930,000 annualized pace, the second-strongest in more than four years, from a 917,000 pace in February, according to the median estimate of 78 economists surveyed by Bloomberg. Other figures may show factory production rose in March and consumer prices were little changed.

A recovery in housing, driven by near record-low mortgage rates and pent-up demand from growing households, is spilling over into other areas of the economy and generating sales at manufacturers such as Hooker Furniture Corp. (HOFT) An even stronger pickup will depend on whether the job market regains its footing after employment cooled in March.

“Housing is going to be a continued source of growth,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama. “The underlying demand is there, and as long as the labor market continues to improve, we should see the rate of household formation increase.”

The Commerce Department will release the data on housing starts at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from a rate of 885,000 to 985,000.

Building permits, a proxy for future construction, will also be included in the report. Economists estimate applications climbed to a 942,000 annual rate, the most since June 2008, from 939,000 in February, according to the survey median.

2012 Rebound

Builders began work on 780,000 homes in 2012, a 28 percent gain from the prior year and the third straight annual increase. Even with the improvements, starts are short of the 2.1 million in 2005 at the peak of the boom, which was a three-decade high.

Starts jumped to a 982,000 annualized pace in December, the most since June 2008, when milder-than-normal temperatures enabled builders to begin projects during a typically slow time of year.

“The momentum from the housing rebound during 2012 has remained strong in the early months of 2013,” John Stumpf, chief executive officer at Wells Fargo & Co., said on an April 12 earnings call. San Francisco-based Wells Fargo funded one in four U.S. mortgages in 2012. “Our near-term outlook is for steady gains in home sales, building activity, and price appreciation. Housing affordability remains excellent.”

A rebound in home construction may generate as many as 500,000 jobs in 2013 and 700,000 in 2014, including related services, according to Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. Residential investment could bolster U.S. economic growth by 0.5 percentage point this year, Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, estimated in an April 10 note to clients.

Spilling Over

Demand for building materials, along with gains in spending on new equipment by U.S. companies, is also helping keep workers on factory floors busy.

“We’re encouraged by the sustained improvement in housing sales, new-home construction, rising housing prices, reduced inventories, historically low mortgage rates, and the best housing affordability in years, all of which combined to create a positive environment for our company and our industry,” Paul Toms, chief executive officer at Martinsville, Virginia-based Hooker Furniture, said during an April 15 earnings call.

A report yesterday showed builder confidence unexpectedly fell in April for a third month, restrained by rising costs for materials and financing restrictions. The National Association of Home Builders/Wells Fargo sentiment index dropped to 42, the lowest since October, from 44 in March.

The Fed’s report on industrial production, due at 9:15 a.m., will probably show output increased 0.2 percent last month, according to economists’ median estimate.

Factory Production

Manufacturing, making up 75 percent of total production, probably gained 0.1 percent after a 0.8 percent in February.

The forecast points to a pause in recent manufacturing momentum as companies slowed the pace of inventory accumulation and consumer spending cooled.

Another report today is projected to show cheaper gasoline is limiting inflation. Economists forecast the consumer-price index was little changed in March after a 0.7 percent gain in February. The Labor Department will release the data at 8:30 a.m. in Washington.

The cost of living rose 1.6 percent over the past 12 months, down from a 2 percent gain in the year ended February, according to the median forecast of economists surveyed.

Subdued price gains are allowing central bank officials to keep stimulating the economy. Fed policy makers, who are pressing on with $85 billion in monthly bond buying until the labor-market outlook has “improved substantially,” aim for a long-run goal of 2 percent inflation.

Investors’ expectations for inflation, as measured by the breakeven rate between Treasury Inflation Protected Securities and nominal bonds, have fallen during the last two months. The expected rate of inflation in the next 10 years dropped to 2.40 percent yesterday from 2.59 percent on March 14, which was the highest level since September.

                        Bloomberg Survey

================================================================
                               CPI  Housing Building     Ind.
                                     Starts  Permits    Prod.
                              MOM%   ,000’s   ,000’s     MOM%
================================================================

Date of Release              04/16    04/16    04/16    04/16
Observation Period           March    March    March    March
----------------------------------------------------------------
Median                        0.0%      930      942     0.2%
Average                       0.0%      930      941     0.2%
High Forecast                 0.3%      985      990     0.7%
Low Forecast                 -0.3%      885      905    -0.5%
Number of Participants          80       78       53       81
Previous                      0.7%      917      939     0.8%
----------------------------------------------------------------
4CAST                        -0.1%      925      920     0.2%
ABN Amro                      0.0%     ---      ---      ---
Action Economics              0.0%      935      945     0.2%
Ameriprise Financial          0.0%      920      940     0.4%
Banca Aletti                  0.2%      930      940     0.3%
Bank of the West              0.0%      930      945     0.2%
Bantleon Bank AG              0.1%      940      950     0.3%
Barclays                     -0.1%      940     ---      0.3%
Bayerische Landesbank         0.1%      935     ---      0.2%
BBVA                         -0.1%      925      940     0.2%
BMO Capital Markets          -0.1%      935      939     0.1%
BNP Paribas                  -0.1%      910     ---      0.3%
BofA Merrill Lynch           -0.1%      940      950     0.2%
Capital Economics             0.0%      945     ---     -0.1%
CIBC World Markets            0.0%      920      950    -0.1%
Citi                          0.0%      925      935     0.1%
ClearView Economics           0.2%      930      950     0.3%
Commerzbank AG               -0.1%      915      935     0.1%
Credit Agricole CIB          -0.1%      930      930     0.3%
Credit Suisse                -0.1%      935      945    -0.1%
Daiwa Securities America     -0.1%      920     ---     -0.1%
Danske Bank A/S               0.0%      927      939     0.1%
DekaBank                      0.0%      910      920     0.4%
Desjardins Group             -0.1%      940      925    -0.5%
Deutsche Bank Securities     -0.1%      895      920     0.3%
Deutsche Postbank AG          0.1%      940     ---      0.3%
First Trust Advisors          0.0%      930     ---      0.2%
FTN Financial                -0.2%      925      941     0.0%
Goldman, Sachs & Co.         -0.1%      940     ---      0.2%
Hammer Partners SA            0.0%      925     ---      0.2%
Helaba                       -0.1%      940      920     0.2%
High Frequency Economics     -0.1%      910      940     0.5%
HSBC Markets                 -0.1%      885      905     0.2%
Hugh Johnson Advisors         0.3%      915     ---      0.3%
IDEAglobal                    0.1%      925      950     0.3%
IHS Global Insight           -0.1%      930      958     0.2%
ING Financial Markets        -0.1%     ---       942     0.1%
Intesa Sanpaolo              -0.1%      935      935     0.3%
J.P. Morgan Chase            -0.1%      930      955     0.4%
Janney Montgomery Scott       0.1%      944      952     0.6%
Jefferies                     0.0%      940      945     0.2%
John Hancock Financial        0.1%      930     ---      0.3%
Landesbank Berlin             0.1%      945      940    -0.1%
Landesbank BW                 0.3%      940      950    -0.1%
Lloyds Tsb Bank              -0.1%      938      943     0.2%
Maria Fiorini Ramirez         0.0%      925     ---      0.2%
Market Securities            -0.1%      929     ---      0.1%
MET Capital Advisors          0.0%      935     ---      0.3%
Mizuho Securities             0.0%      921     ---      0.1%
Modal Asset                   ---       960     ---     -0.1%
Moody’s Analytics            -0.1%      937      945     0.5%
Morgan Stanley & Co.         -0.1%      936     ---      0.5%
National Bank Financial       0.0%      930      940     0.3%
Natixis                       0.1%      920     ---      0.1%
Nomura Securities             0.0%      933      962     0.2%
Nord/LB                       0.1%      920      940     0.0%
OSK Group/DMG                -0.1%      925     ---      0.2%
Oxford Economics              0.0%      923      954     0.2%
Pantheon Macroeconomic       -0.1%      950      950     0.5%
Pierpont Securities          -0.1%      935     ---     -0.1%
PNC Bank                      0.0%      925     ---     -0.1%
Prestige Economics            0.2%      935      965     0.2%
Raiffeisenbank International  0.0%     ---      ---      ---
Raymond James                -0.3%      925      935     0.7%
RBC Capital Markets          -0.1%      925     ---      0.3%
RBS Securities               -0.1%      930     ---      0.1%
Regions Financial             0.0%      910      930     0.2%
Santander                     ---       962     ---      0.1%
Scotiabank                   -0.1%      932     ---      0.2%
SMBC Nikko Securities         0.0%      910      915     0.3%
Societe Generale             -0.1%      985      990     0.5%
Southbay Research             ---      ---      ---     -0.3%
Southern Polytechnic State    0.3%     ---      ---     -0.3%
Standard Chartered Bank       0.2%      935      930     0.1%
Stone & McCarthy             -0.1%      935      925     0.1%
TD Securities                 0.1%      905      950     0.3%
UBS                          -0.1%      935      945     0.3%
UniCredit Research            0.1%      930      920     0.1%
Union Investment              0.1%      940      950     0.3%
University of Maryland        0.0%      930      945     0.3%
Wells Fargo & Co.             0.1%      937     ---      0.2%
Westpac Banking Co.          -0.1%      926      958     0.0%
Wrightson ICAP               -0.1%      935      945     0.2%
================================================================

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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