Builders Begin Work on More U.S. Homes Than Forecast

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Workers perform a final inspection on Sonata and Elantra vehicles at the Hyundai Motor Manufacturing Alabama assembly plant in Montgomery, Alabama, on Oct. 22, 2013. Close

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Workers perform a final inspection on Sonata and Elantra vehicles at the Hyundai Motor Manufacturing Alabama assembly plant in Montgomery, Alabama, on Oct. 22, 2013.

Factories churned out more cars and appliances in December and homebuilders overcame inclement weather to begin work on more homes than projected, putting the U.S. economy on a strong footing heading into 2014.

Output at factories, mines and utilities climbed 0.3 percent to cap the strongest quarter since 2010, according to Federal Reserve figures issued today in Washington. Housing starts fell 9.8 percent to a 999,000 annualized rate following November’s 1.11 million pace that was the highest in six years, the Commerce Department reported.

Housing and manufacturing will be sources of strength for the economic expansion as gains in consumer spending propel demand for building materials, furniture and the newest model car. Another report today showing employers had more openings in November than at any time in more than five years means hiring will probably rebound following a disappointing gain last month.

“When I look at 2014, I’m looking at continued solid growth,” said Michael Carey, chief economist for North America at Credit Agricole CIB in New York, who was among the most accurate forecasters of the housing and production reports over the past two years, according to data compiled by Bloomberg. Housing “is going to be a contributor to growth in the next year, clearly, and the industrial sector as well.”

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A worker sands a piece of custom furniture at the at Baker Road Furniture manufacturing facility in South Elgin, Illinois.

The median estimate of 83 economists surveyed by Bloomberg projected U.S. housing starts would drop to a 985,000 annualized rate. Estimates ranged from 925,000 to 1.08 million. The Commerce Department revised the November reading up to 1.11 million, which was the most since November 2007.

Construction Climbs

For all of 2013, builders began work on 923,400 homes, up 18.3 percent from the prior year and the most since 2007’s 1.36 million.

Most stocks fell, dragging the Standard & Poor’s 500 Index lower for the week, as earnings from companies including General Electric Co. and Intel Corp. disappointed investors. The S&P 500 declined 0.4 percent to 1,838.7 at the close in New York.

Some U.S. trading partners are also doing better. Retail sales in the U.K. rose more than economists forecast in December, led by a surge at department stores and smaller shops during the key Christmas season.

Permits (NHSPATOT) for future U.S. housing projects declined, a sign activity may pause in early 2014, today’s report also showed. Applications fell 3 percent to a 986,000 pace in December, less than the projected 1.01 million, according to the Bloomberg survey median.

Housing’s Contribution

“Housing will make a significant contribution to growth this year,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts, who forecast a decrease to 997,000. “Higher prices are bringing more building.”

Work on single-family houses fell 7 percent to a 667,000 rate in December, while construction of multifamily projects such as condominiums and apartment buildings declined 14.9 percent.

Two of four regions showed a decrease in ground breaking last month, led by a 33.5 percent plunge in the Midwest. Starts fell 12.3 percent in the South, were little changed in the Northeast and rose 15 percent in the West to a six-year high.

Weather may have played a role in setting back some builders, auto dealers and retailers as last month was the coldest December since 2009. Snowfall was 21 percent above normal, according to weather-data provider Planalytics Inc.

Still, labor-market gains and rising real-estate values have developers upbeat about the industry’s prospects. Homebuilder sentiment in January held near its highest level in eight years, dipping to 56 from 57 in December. Readings greater than 50 mean more respondents report good market conditions.

Less Confident

Not all the news was good today. Consumer confidence unexpectedly declined in January, a sign spending may take time to accelerate early this year. The Thomson Reuters/University of Michigan preliminary sentiment index fell to 80.4 from 82.5 in December.

“The sentiment index is still at a respectable level,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York. Still “it tells us were not breaking out into new territory.”

Chillier-than-normal temperatures were less disruptive to factories last month. The gain in production last month followed a 1 percent increase in November. For the final three months of 2013, output climbed at a 6.8 percent annualized pace, the most since the second quarter of 2010.

Consumer Spending

“There’s been a pickup in manufacturing in the last couple months,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, the top-ranked forecaster of production in the past two years, according to data compiled by Bloomberg. “Certainly you have to start with the consumer in the last couple of months and there’s been a pretty strong pace in goods consumption.”

Manufacturing (IPMGCHNG), which makes up 75 percent of total production, advanced 0.4 percent in December after a 0.6 percent gain. Economists projected a 0.3 percent increase last month, according to the Bloomberg survey median. Factory output in the fourth quarter increased at a 6.2 percent annualized rate, the strongest since the first three months of 2012.

Output increased last month over a broad swath of industries, including autos, appliances, furniture, home electronics and clothing.

Automakers completed their best sales year since 2007 and are upbeat about the year ahead. Dearborn, Michigan-based Ford Motor Co. (F), the second-largest U.S. automaker, plans to add 5,000 jobs in the U.S. as it introduces 16 new vehicles in North America this year.

Job Openings

Ford isn’t alone in looking to add staff. The number of positions waiting to be filled increased by 70,000 in November to 4 million, the most since March 2008, figures from the Labor Department also showed today. The gain in openings indicates employers were gaining confidence in the economic expansion, a sign last month’s hiring slowdown may have been weather-related.

Payrolls expanded by 74,000 workers last month after a revised 241,000 gain in November that was larger than initially estimated, the Labor Department reported on Jan. 10. The jobless rate dropped to 6.7 percent in December, the lowest level since October 2008, as more people left the labor force.

“All we need to do is get the jobs figures back up and get some more earnings growth, and that should sustain consumers at a decent pace,” said Credit Agricole CIB’s Carey.

To contact the reporters on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Carlos Torres in Washington at ctorres2@bloomberg.net

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