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Tags: economy | economic | housing | home | factory | unemployment

Data Week: Housing Likely Lagged Behind Factories

Sunday, 15 May 2011 05:52 PM EDT

Sales and construction of U.S. homes probably hovered in April around the lows reached during the recession, while factories kept churning out more goods, a reminder that manufacturing remains the engine of the recovery, economists said before reports this week.

Sales of existing homes rose 2 percent to a 5.2 million annual pace, according to the median forecast of 55 economists surveyed by Bloomberg News before a May 19 report from the National Association of Realtors. Industrial production grew for a sixth month, figures from the Federal Reserve may show.

Falling real-estate values and more unsold homes lurking in the foreclosure pipeline mean gains in sales and construction may be slow to gain traction. Factories have carried the economy, validating the Federal Reserve’s decision to maintain record stimulus until the recovery becomes self-sustaining.

“We’re still in the doldrums in the housing market,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “Manufacturing has been the best performing sector of the economy and there is reason to believe it will stay that way, at least for the foreseeable future.”

Estimates for home sales in the Bloomberg survey ranged from 5.09 million to 5.40 million. Purchases reached a record 7.08 million in 2005, and slumped to a 13-year low 4.91 million last year.

Builders began work on 568,000 houses at an annual rate last month, up 3.5 percent from a 549,000 pace in March, economists forecast the Commerce Department will report on May 17. Starts averaged 1.72 million a year in the decade before the recession began in December 2007. They slumped to a record low 554,000 in 2009.

Builder Confidence

Confidence among homebuilders remains at recession levels. The National Association of Home Builders/Wells Fargo sentiment index rose to 17 this month from 16 in April, data from the Washington-based group may show on May 16. Numbers lower than 50 signal more respondents view conditions as poor.

Douglas Yearley Jr., chief executive officer at Toll Brothers Inc., the largest U.S. luxury-home builder, last week said the spring home selling season has been “disappointing” and that “people are still scared.”

Demand for new houses will remain weak into 2012, said Bill Wheat, chief financial officer of D.R. Horton Inc., who last week also projected a housing recovery will take time to develop.

Protracted ‘Struggle’

“We don’t see the economic drivers to change in 2011,” said Wheat, whose Fort Worth, Texas-based company is the second- largest homebuilder by revenue. “We feel it could still be a struggle in 2012.”

The manufacturing industries that make up 12 percent of the economy continue to spearhead the recovery that began in June 2009, led by business spending on new equipment and demand from emerging economies like China, Brazil and Mexico. American exports in March rose to the highest level on record.

Industrial production rose 0.4 percent in April after increasing 0.8 percent the prior month, economists surveyed by Bloomberg forecast the Fed will report on May 17.

Caterpillar Inc. last month said it expects global economic growth this year of about 4 percent, with developing countries expanding by 6.5 percent and the U.S. by 3.5 percent.

Caterpillar posted first-quarter profit that topped analysts’ estimates and raised its full-year earnings forecast as sales surged in developing countries. The Peoria, Illinois- based maker of earthmoving equipment said its outlook would have been higher had it not been for the March 11 earthquake in Japan.

Sporadic Disruptions

“Our facilities in Japan were not damaged by the earthquake and tsunami, but many of our suppliers in Japan were,” Chief Executive Officer Doug Oberhelman said on a conference call April 29. “As a result, we are experiencing sporadic production disruptions at many of our facilities around the world.”

Industrial companies have outperformed homebuilders this year. The Standard & Poor’s Supercomposite Machinery Index has gained 6.7 percent since Dec. 31, compared with a 2.7 percent decline for the S&P Supercomposite Homebuilding Index.

Other reports this week may signal the economic recovery is cooling. The Conference Board’s index of leading indicators rose 0.1 percent in April, compared with a 0.4 percent gain in March, economists forecast an April 19 report will show. The projected increase in the gauge, which is designed to signal the economy’s path over the next three to six months, would be the smallest since August.

A jump in claims for unemployment insurance benefits last month is one reason the leading index moderated. A Labor Department report May 19 may show that increase is now reversing.

The number of applications for jobless benefits fell to 420,000 last week from 434,000 the prior week, according to the survey median. Claims would still exceed the 375,000 reached in February, a two-year low.

© Copyright 2023 Bloomberg News. All rights reserved.

Sales and construction of U.S. homes probably hovered in April around the lows reached during the recession, while factories kept churning out more goods, a reminder that manufacturing remains the engine of the recovery, economists said before reports this week.Sales of...
Sunday, 15 May 2011 05:52 PM
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