Factories Lead U.S. Economic Rebound as Housing Lags

Gains in manufacturing are helping power the U.S. out of the winter doldrums, while homebuilding shows signs of lagging behind.

Factory production climbed 0.5 percent in March after a revised 1.4 percent surge in February that marked the biggest gain in almost four years, figures from the Federal Reserve showed today in Washington. Housing starts rose 2.8 percent to a 946,000 annualized rate last month, falling short of the median forecast of economists surveyed by Bloomberg, according to Commerce Department data.

Assembly lines are accelerating as retailers restock inventory after American consumers, braced by gains in hiring, return to shopping malls and auto dealerships following unusually cold temperatures at the start of the year. The housing industry has been challenged by rising mortgage rates, still-tight credit and a lack of available land, which means additional strength will be slow to develop.

“There’s a lot of pent-up demand among consumers and businesses, and factories have to produce those goods,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “Housing is still in recovery mode. We have a long way to go before we get to expansion in this sector.”

Stocks rose, with the Standard & Poor’s 500 Index climbing a third day, on the gain in production and as Yahoo! Inc. earnings topped estimates. The S&P 500 rose 0.4 percent to 1,850.03 at 10:51 a.m. in New York.

Total Production

The Fed’s report also showed total output, including factories, mines and utilities, climbed 0.7 percent last month after a revised 1.2 percent increase in February.

The median forecast in a Bloomberg survey of 79 economists called for a 0.5 percent rise. Estimates ranged from no change to an increase of 1 percent after a previously reported 0.6 percent increase. Manufacturing accounts for about 12 percent of the economy.

The report is consistent with data from the Institute for Supply Management that showed manufacturing accelerated in March, driven by production and orders.

Today’s Fed report showed the gains in output stretched from makers of business equipment such as computers and communications gear to suppliers of construction materials, furniture and appliances.

The output of motor vehicles and parts decreased 0.8 percent after a 6.9 percent surge a month earlier that was the biggest since July 2010, according to today’s report.

Auto Sales

Vehicle sales at Ford Motor Co., Chrysler Group LLC and Toyota Motor Corp. beat analysts’ estimates in March as a pickup in consumer confidence and warmer weather encouraged Americans to return to auto dealers. Cars and light trucks sold last month at the fastest pace since May 2007, data from Ward’s Automotive Group showed.

The auto sector will probably remain a mainstay for manufacturers. Alcoa Inc. posted a higher-than-projected profit as demand from American automakers helped offset a flood of aluminum from China that’s driving down prices across the industry.

“The opportunity in auto is tremendous,” Chairman and Chief Executive Officer Klaus Kleinfeld said in a telephone interview on April 8. Kleinfeld told analysts on a conference call that Alcoa’s sales of auto sheet will rise to $1.3 billion in 2018 from $330 million this year. He sees demand growth driven by developments such as Ford’s new lightweight aluminum-bodied F-150 pickup truck.

More Hiring

Household demand is improving as the winter chill fades and employment rises. Private payrolls climbed to 116.1 million in March, and have made up all the jobs lost as a result of the recession.

Warmer weather helped lift retail sales in March by 1.1 percent, the biggest gain since September 2012, figures showed earlier this week.

While warm weather and the onset of the spring selling season boosted housing activity in the Northeast and Midwest, construction declined in the rest of the country, according to today’s Commerce Department report.

Housing starts surged 65.5 percent in the Midwest and 30.7 percent in the Northeast. They dropped 9.1 percent in the South, to the slowest pace since October, and 4.5 percent in the West to a six-month low.

Permits for future projects declined 2.4 percent in March to a 990,000 annualized pace. They were projected to be little changed at 1.01 million, according to the Bloomberg survey median.

“Housing will contribute positively to GDP this year, but not by nearly as much as in 2012 and 2013,” said Dana Saporta, director of U.S. economics research at Credit Suisse in New York and the second-most accurate forecaster for starts over the past two years, according to data compiled by Bloomberg. “We are seeing continued improvement in housing starts, but at a slower pace.”

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