Housing Construction Probably Advanced: U.S. Economy Preview

Builders probably began work on U.S. homes in March at the second-fastest pace in almost five years, a sign one of the bright spots of the expansion is making further progress, economists said before reports this week.

Housing starts increased to a 930,000 annualized rate from a 917,000 pace in February, according to the median estimate of 63 economists surveyed by Bloomberg before an April 16 report from the Commerce Department. Figures from the Federal Reserve the same day may show industrial production rose in March.

The housing recovery is fanning out to other areas of the economy, underpinning orders at manufacturers such as United Technologies Corp. Mortgage rates are hovering close to all-time lows as a lack of inflation allows the Fed to pursue record monetary stimulus.

“The economy is in much better shape, and that’s helped by housing,” said Steve Blitz, chief economist at ITG Investment Research Inc. in New York.

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.

A projected increase in building permits shows the pace of construction will continue. Applications to build a home increased last month to a 943,000 annualized rate, exceeding the pace of starts, from 939,000 in February, according to the median projection in a Bloomberg survey.

Housing Starts

Builders began work on 780,000 homes in 2012, a 28 percent increase from the prior year and the third straight annual gain. 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.

“The momentum from the housing rebound during 2012 has remained strong in the early months of 2013,” John Stumpf, president and 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.”

Adding to evidence of a healthier real-estate market, a report tomorrow from the National Association of Home Builders/Wells Fargo may show builders gained confidence in April.

Spilling Over

Demand for building materials, along with gains in spending on new equipment by U.S. companies, is helping underpin manufacturing.

“The market in the U.S. is more robust than the GDP figures will suggest,” Pedro Baranda, president of the Otis Elevator unit of United Technologies, said during a March 14 analyst meeting. “There’s strong commercial business coming back. This housing recovery right now appears to be driven by multi-property development aimed at the rental market,” which boosts demand for elevators, he said.

Industrial production probably rose 0.2 percent last month, according to the median estimate of economists before the Fed’s report. Manufacturing, which makes up 75 percent of total output, gained 0.1 percent after a 0.8 percent in February.

The forecast indicates a pause in the recent momentum for manufacturing as companies slowed the pace of inventory accumulation and consumers pulled back.

Sales Drop

Retail sales declined in March by the most in nine months as employment slowed, showing household spending ended the first quarter on softer footing, according to figures from the Commerce Department on April 12. The 0.4 percent decrease, the biggest since June, followed a 1 percent gain in February. Department stores and electronics dealers were among the weakest showings.

Another report this week is projected to show cheaper gasoline prices are limiting inflation, which will help keep consumer spending from faltering. Economists forecast the consumer-price index was little changed in March after a 0.7 percent gain in February. The average cost of a gallon of gas fell in March for the first time since AAA, the nation’s largest auto group, began tracking the data in 2004.

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 gains in the cost of living 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.

                        Bloomberg Survey

                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
Empire Manu. Index        4/15     April      9.2       7.0
Net Long Term TICS $ Bl   4/15     Feb.       25.7      40.0
NAHB Housing Index        4/15     April       44        45
CPI  MOM%                 4/16     March      0.7%      0.0%
Core CPI MOM%             4/16     March      0.2%      0.2%
CPI  YOY%                 4/16     March      2.0%      1.6%
Core CPI YOY%             4/16     March      2.0%      2.0%
Housing Starts ,000’s     4/16     March      917       930
Housing Starts MOM%       4/16     March      0.8%      1.4%
Building Permits ,000’s   4/16     March      939       943
Building Permits MOM%     4/16     March      3.9%      0.4%
Ind. Prod. MOM%           4/16     March      0.8%      0.2%
Cap. Util. %              4/16     March     78.3%     78.4%
Manu. Prod. MOM%          4/16     March      0.8%      0.1%
Initial Claims ,000’s     4/18     13-Apr     346       350
Cont. Claims ,000’s       4/18     6-Apr      3079      3073
Bloomberg US Econ         4/18     April      -4.0      n/a
Philly Fed Index          4/18     April      2.0       3.0
LEI  MOM%                 4/18     March      0.5%      0.1%
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