New Home Starts Rise 2.4% in May; Industrial Production Inches Up : Economy: Analysts see a lack of momentum in the recovery. Low demand for new housing and retail inventory backlogs are cited.
New home construction in May reached the highest level so far this year and industrial output inched up for the eighth consecutive month, the government said Wednesday.
But the 2.4% rise in starts on new houses and apartments and the 0.2% gain in production by factories, mines and utilities did not impress analysts, who said the economy is showing little sign of regaining strength.
“We don’t have much forward momentum. That’s not to say things are deteriorating. They’re just not improving very much,” said Ray Stone of Stone & McCarthy Research Associates.
The increase in home construction brought starts last month to a seasonally adjusted annual rate of 1.24 million units, after a revised 8.1% rise in April to 1.22 million units. The April improvement previously was reported as 6.7%.
May’s level was the highest since December, when work was begun on 1.29 million units.
Economists said last month’s gain reflected a continued rebound from the slump in March, when a severe storm lashed the East and hampered building activity. In addition, lumber prices surged during the first quarter.
Since then, warmer weather has rekindled activity and lumber prices have fallen. Mortgage rates continue to hover near 20-year lows, and home prices are the most affordable in two decades.
Economists say the recent pickup in jobs and other sectors of the economy is likely to entice more people to shop around for new homes.
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Still, economists had hoped for a larger May increase after the first quarter’s weather-related slump.
“We’re getting slow gains. We’re seeing some advances, but it’s a very sluggish progress,” said David Wyss of DRI/McGraw-Hill.
Economists look for modest gains in the months ahead. An excess of apartment buildings and the low birth rates of the 1970s continue to limit demand for new homes.
Overall, April starts were 3.9% higher than in May, 1992.
Regionally, housing starts fell 1.7% in the Northeast to an annual rate of 114,000 units. In the South, they rose 2.8% to 556,000 units, the most since February, 1990, when starts numbered 572,000.
In the Midwest, starts jumped 10.2% to a rate of 281,000 units. In the West, they fell 3.3% to 293,000 units, a reflection of the weak California economy.
Construction of single-family houses advanced 2.5% in May to a seasonally adjusted annual rate of 1.09 million units, after surging 8.1% in April. Apartment building construction rose 1.4% to a rate of 150,000 units, after an 8% rise in April.
Applications for permits to build homes--an indicator of future building--rose for a second straight month. Permits climbed 1.2% to a seasonally adjusted annual rate of 1.11 million units. Permit applications jumped 6.5% in April.
A slim rise in industrial output followed a revised 0.2% increase in April, the Federal Reserve Board reported. The April rise previously was reported as 0.1%.
The string of eight gains in output was the longest since a streak of 11 months that started in March, 1983.
Nevertheless, economists said the manufacturing sector is growing at a slow pace. Output last month was 3.5% above May, 1992, levels.
Production of long-lasting consumer goods fell 1% last month, reflecting a drop in output of autos and trucks.
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Economists said output remains under pressure because of an excessive buildup in retailers’ supplies of unsold goods in the first quarter, cuts in military spending and cutbacks in the civilian aircraft industry.
The Fed also said U.S. industries operated at 81.6% of their capacity in May, the same level as in April and March. The April and March capacity use rates previously were reported as 81.4%.
Housing Starts
Seasonally adjusted annual rate in millions of units: May, ‘93: 1.24 Apr., ‘93: 1.22 May, ‘92: 1.20
Industiral Production
Seasonally adjusted index: May, ‘93: 110.4 Apr., ‘93: 110.1 May, ‘92: 106.7
