Confidence Jump With Housing Points to U.S. Growth: Economy

Purchases of new homes surged in January by the most in two decades and consumer confidence jumped this month, signs of a rebound in U.S. economic growth at the start of 2013.

Home sales surged 15.6 percent to a 437,000 annual pace, exceeding the highest forecast in a Bloomberg survey and following a 378,000 rate in the prior month, figures from the Commerce Department showed today in Washington. The Conference Board’s consumer sentiment index climbed to 69.6, also beating all estimates in a Bloomberg survey.

The figures bolster Federal Reserve Chairman Ben S. Bernanke’s view that the fourth-quarter slump in growth will prove temporary as the central bank’s efforts to keep interest rates low help households repair finances. Rising property values may underpin consumer spending, benefiting retailers such as Macy’s Inc., even as an increase in the payroll tax reduces take-home pay and gasoline prices climb.

“Housing is now kicking into higher gear,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, who was the best confidence forecaster over the past two years, according to data compiled by Bloomberg. “The next few months are still going to be a struggle for households as fuel prices are elevated, but the improvement in confidence reduces the risk of the worst-case scenario.”

Stocks climbed, following the biggest slump since November for benchmark indexes, after the reports indicated the world’s largest economy was overcoming the budget impasse in Washington. The Standard & Poor’s 500 Index advanced 0.6 percent to 1,496.94 at the close in New York.

Bernanke’s Defense

Bernanke today defended the central bank’s unprecedented asset purchases, saying they are supporting the expansion with little risk of inflation or bubbles in stocks and bonds.

“We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery,” Bernanke said in testimony to the Senate Banking Committee in Washington.

A year after first using the term “fiscal cliff” to warn of the cost of immediate cuts in government outlays, Bernanke returned to Congress with three days remaining to avert $1.2 trillion of automatic cuts over nine years that take effect unless lawmakers and President Barack Obama agree on an alternative. Bernanke cited an estimate from the nonpartisan Congressional Budget Office that the spending cuts known as sequestration will cause a 0.6 percentage-point reduction in growth this year.

Central Banks

Belief in the effectiveness of central banks’ extraordinary measures was echoed overseas as Bank of England Deputy Governor Paul Tucker said today that he’s open to adding to asset purchases as policy makers stressed they have the flexibility to expand stimulus if needed.

The median estimate of 72 economists surveyed by Bloomberg called for U.S. new-home sales to climb to a 380,000 annualized rate. Estimates ranged from 355,000 to 409,000.

The level of sales last month was the highest since July 2008 and the percentage increase from December was the biggest since April 1993.

Another report today showed home prices in 20 U.S. cities rose in the 12 months to December by the most since July 2006. The S&P/Case-Shiller index of property values increased 6.8 percent from December 2011 after advancing 5.4 percent in November, the New York-based group said. Nineteen of 20 cities showed gains.

‘Broadly Based’

“The key here is it’s not as if we’re getting all the juice from one area, it’s broadly based across the country,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who correctly projected the year-over-year increase. “Rates are low, prices are attractive, so affordability is high, and the labor market is gradually healing as well. If you were in the market to buy a home, right now it’s a good time.”

Demand for new houses picked up in all four regions as buyers took advantage of mortgage rates near record lows, helping to boost the outlook for companies from PulteGroup Inc. to Mohawk Industries Inc.

“2013 will be a better year for U.S. housing than 2012,” Richard Dugas, chief executive officer of PulteGroup, said on a Jan. 31 earnings call.

Housing-related businesses like Mohawk Industries, the world’s largest maker of flooring products, also are counting on the rebound.

“In the U.S., low mortgage rates, stabilizing home prices, improving employment should sustain the housing recovery,” Jeffrey Lorberbaum, chief executive officer of Calhoun, Georgia-based Mohawk, said on a Feb. 22 earnings call. “We anticipate revenue and earnings growth for 2013 as the U.S. market improves.”

Confidence Jumps

The Conference Board’s sentiment index jumped in February from a revised 58.4 in January, data from the New York-based private research group showed. The measure’s 11.2-point jump was the biggest since November 2011, offsetting much of the almost 15-point slide over the previous three months.

“The absolute levels of consumer confidence are still low,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who had the highest estimate for confidence in the Bloomberg survey. “It’s important to make a distinction between recovering and recovered.”

The cutoff date for replies to the Conference Board’s consumer survey was Feb. 14, indicating the heated political rhetoric over the across-the-board government spending cuts slated to take effect March 1 wasn’t reflected in these numbers, said Vitner.

Growth Forecast

Still, an improving housing market and gains in employment and confidence indicate growth will pick up this month. The world’s largest economy will grow at a 1.8 percent annualized rate from January through March, 0.1 percent more than they previously estimated, economists at Morgan Stanley in New York said following the new-homes sales report.

Gross domestic product shrank at a 0.1 percent pace in the last three months of 2012, the Commerce Department reported last month. Revised figures in two days will show the economy grew at a 0.5 percent rate, according to the median forecast of economists surveyed by Bloomberg.

“Growth is heating up a little bit, but the pace of economic growth is still much slower than what we’re used to in an economic recovery,” said Wells Fargo’s Vitner.

Sustained gains in consumer spending, which accounts for about 70 percent of the economy, as Americans weather the budget battles are among the reasons why growth will strengthen.

Cincinnati-based Macy’s, the second-largest U.S. department-store chain, today forecast annual profit that was higher than analysts’ estimates amid a surge in online sales.

Among other signs of improvement, a regional manufacturing gauge jumped this month. The Federal Reserve Bank of Richmond’s factory index showed manufacturers in its region expanded in February after slumping at the start of the year.