Home starts join U.S. factories topping forecasts

by The City Wire staff ([email protected]) 69 views 

BLOOMBERG — Housing starts and industrial production exceeded forecasts in April, pointing to strength in the U.S. economy at the start of the second quarter.

Starts rose 2.6% to a 717,000 annual rate from March’s revised 699,000 pace that was stronger than previously reported, Commerce Department figures showed today in Washington. Industrial production climbed 1.1%, the most since December 2010, the Federal Reserve said.

The reports indicate the world’s largest economy is withstanding the fallout from the European debt crisis. Borrowing costs kept low by the Fed and labor-market gains are spurring consumer demand for autos and housing, lifting sales at companies from PulteGroup Inc. to Chrysler Group LLC.

“The improvement in housing is more noticeable now, and manufacturing is pretty solid,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “It makes the expansion more resilient. Europe is affecting U.S. business sentiment more than it is impacting U.S. economic data.”

Several Fed policy makers said a loss of momentum in U.S. growth or increased risks to their economic outlook could warrant more action to keep the expansion intact, minutes of their last meeting showed.

“Several members indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough,” according to minutes of the Federal Open Market Committee’s April 24-25 meeting released Wednesday (May 16).

U.S. industrial production was propelled by gains in motor vehicle output and the biggest increase in utility use in two years, the Fed’s data showed. The median forecast in a Bloomberg survey of economists called for a 0.6% advance. The April increase followed a 0.6% drop in March that was revised from no change.

Auto sales in the first quarter that were the strongest in four years have buoyed manufacturing, helping make up for a slowdown in corporate equipment purchases. At Chrysler, which builds more than half its vehicles in the U.S., sales climbed 20% in April, according to the company.

Half of the gain in factory output in April was due to a 3.9% surge in motor vehicles, Wednesday’s data showed.

“Auto production is doing well because consumers are buying vehicles, and consumers are buying vehicles because they feel more positive about their job prospects,” said Millan Mulraine, senior U.S. strategist at TD Securities Inc. in New York.

While manufacturing growth is being sustained, residential construction may be perking up. Estimates in the Bloomberg survey for April housing starts ranged from 641,000 to 730,000. The prior month was revised from 654,000. Today’s report reflects revisions dating back to January 2010.

Building permits decreased 7% to a 715,000 annual pace last month from 769,000 in March, which was the fastest since September 2008, Wednesday’s report showed. Construction of single-family houses climbed 2.3% to a three-month high 492,000 rate from 481,000 the prior month.

Bloomfield Hills, Mich.-based PulteGroup said orders rose 15% to 4,991 homes in its first quarter. Backlogs increased 12% to 5,798 homes at the largest U.S. homebuilder by revenue.

“It was the first quarter in several years that fundamental demand came in stronger than expected,” Chief Executive Officer Richard Dugas said during a conference call with analysts. “We are pleased with how the year has started off, including a continuation of better sales activity thus far in April.”

Work on multifamily homes, such as townhouses and apartment buildings, increased 3.2% to an annual rate of 225,000, Wednesday’s Commerce Department report showed.

Builders still have to contend with a stream of distressed houses returning to the market, adding to inventory and pushing prices lower.

Foreclosures and tight credit markets remain a constraint on housing, Fed Governor Elizabeth Duke said in a speech yesterday in Washington.

While still-elevated foreclosures are “indicative of a historic level of homeowner stress,” she said, “there are signs that further gradual improvement may lie ahead.”

There are “some promising signs in the trend of house prices as well” and “somewhat encouraging” indicators of housing construction activity, Duke said.