Small Home Starts Gain Shows Lack of U.S. Construction Vigor

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Housing Starts Disappoint, Jobless Claims Rise 12,000

Housing starts rose less than forecast in March from the weakest pace in more than a year, underscoring a lack of vigor in homebuilding that held back the U.S. economy.

Work began on 926,000 houses at an annualized rate, up 2 percent from February when bad winter weather prompted a 15.3 percent plunge, figures from the Commerce Department in Washington showed Thursday. Starts were less than the most pessimistic estimate in a Bloomberg survey of economists and reflected slowdowns in the West and South.

The figures indicate construction did little to invigorate a first-quarter economy already slowed by weakness in manufacturing and consumer spending. At the same time, an improving labor market, still-confident households and low mortgage rates are giving builders reason to be upbeat.

Housing’s contribution to growth in the first quarter “is close to zero,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York. “If you look at housing more broadly, though, to me it still looks positive. The labor market has a lot to do with that.”

Among other reports Thursday, fewer than 300,000 American workers filed applications for jobless benefits for a sixth consecutive week and consumer confidence held near an almost eight-year high.

While a Labor Department report showed jobless claims increased by 12,000 to 294,000 in the week ended April 11, readings this low are typically consistent with an improving job market. The Bloomberg Consumer Comfort Index fell to 46.6 in the period ended April 12, from the prior week’s 47.9 reading that was the strongest since May 2007.

Stocks Fluctuate

Stocks were little changed, after the Standard & Poor’s 500 Index neared a record, as semiconductors declined on SanDisk Corp. results and offset a rally in Netflix Inc. The S&P 500 slipped 0.1 percent to 2,104.99 at the close in New York. The S&P Supercomposite Homebuilding Index dropped 2.1 percent.

The median estimate of 80 economists surveyed by Bloomberg was for a 1.04 million rate of starts. Estimates ranged from 950,000 to 1.12 million. The February reading was revised to 908,000 from a previously reported 897,000.

The smaller-than-estimated March gain reflected the weakest pace of multifamily home starts since September 2013. While ground-breaking on single-family houses increased 4.4 percent to a 618,000 rate in March, it followed a 15.2 percent plunge a month earlier.

Regional Declines

Construction slumped 19.3 percent in the West to a 201,000 rate, the weakest since May, and dropped 3.5 percent to a four-month low in the South.

Home construction rebounded in the rest of the country as builders in areas affected by February’s bad weather got back to work. Starts in the Northeast jumped a record 115 percent and were up 31.3 percent in the Midwest.

Applications for new-home construction fell 5.7 percent to a 1.04 million annualized rate in March. The decline included a 15.9 percent slump in permits for multifamily projects such as apartment buildings.

Permit applications for single-family projects exceeded the number of starts, signaling some room for a pickup in construction.

“Housing’s not going to come back immediately -- that doesn’t mean it’s not going to come back,” said Lewis Alexander, chief economist at Nomura Securities International Inc., who forecast a starts pace of 950,000. “The fundamentals for housing are supportive.”

Builder Sentiment

Homebuilders are more confident about the outlook for housing as prospective buyers returned to the market and sales climbed. The National Association of Home Builders/Wells Fargo sentiment gauge advanced to 56, the highest since January, from 52 in the previous month, the Washington-based group reported Wednesday.

Historically low borrowing costs will probably help spur interest from prospective homebuyers. The average rate on a 30-year fixed mortgage was 3.67 percent in the period ended April 16, close to an almost two-year low of 3.59 percent reached in February, according to data from Freddie Mac in McLean, Virginia.

Increased household formation has given companies, including Los Angeles, California-based KB Home, cause for optimism. As millennials -- young adults born after 1980 --enter their homebuying years, demand should climb, Chief Executive Officer Jeffrey Mezger said on a March 20 earnings call.

‘Gaining Traction’

“The housing recovery is gaining traction, with plenty of runway before we reach normalized volume levels,” Mezger said on the call. More broadly, “mortgage rates and affordability remain favorable, resale inventory levels are low, price appreciation continues, and the share of home sales that are distressed has declined.”

Further improvement in the labor market will be needed to sustain that trend. While payrolls rose by a less-than-forecast 126,000 workers in March, the gain followed a 12-month streak of increases of 200,000 or more.

Firings have remained low even as other labor-market data have shown the economy battled harsher weather, weaker demand from abroad and West Coast port disruptions early this year. A muted pace of dismissals, and job openings at a 14-year high, will help buoy hiring after payroll gains cooled last month.

The Labor Department’s report Thursday showed the four-week average of jobless claims, a less-volatile measure than the weekly figure, was little changed at 282,750 compared with an almost 15-year low of 282,500 in the prior week.

“All signs point toward a job market that continues to strengthen,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Businesses are looking past the weakness in the first quarter.”

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