Housing Starts, Optimism Index Continue to Ebb

Builders broke ground on new homes at a slower pace for a second straight month during September, the Commerce Department said Wednesday.

A separate report by the Conference Board showed business executives’ confidence in the U.S. economy fell in the third quarter to the lowest level in more than seven years.

Housing starts fell 2.5% last month to a seasonally adjusted annual rate of 1.58 million, after a revised 5.2% decrease to 1.62 million in August. Starts had hit an annual rate of 1.70 million in July--the strongest building pace in more than a year--before beginning to ease.

Analysts cited builders’ difficulties in getting bank loans and caution about the economic outlook as factors in the slowdown, but said the building industry remained healthy, with lean inventories.

Housing permits plunged 4.5% in September, the largest decline since January 1995.

However, industry expectations about the U.S. housing market rose to a record level in October, according to a survey by the National Assn. of Home Builders. The trade group’s housing market index rose to 73 this month, from September’s 71, the organization said.

A reading above 50 suggests that more survey participants see good economic conditions than poor ones for home sales.

In September, housing starts in the South dropped 8.6%, partly because of Hurricane Georges. Starts rose 5.6% in the West and 3.2% in the Midwest, while they fell 3.6% in the Northeast.

The Conference Board said its Measure of Business Confidence fell to 41 in the third quarter, from 49 in the second quarter, staying under a reading of 50 for the third consecutive three-month period. A reading above 50 reflects more positive responses than negative ones.

The current index was the lowest since it hit 39 in the first quarter 1991, said Lynn Franco, associate director at the Conference Board’s Consumer Research Center. That quarter marked the end of the last recession.

Weakness in financial markets and declines in corporate earnings, “all of which are a result of the Asian crisis, all contributed to a decrease in optimism,” Franco said.

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Housing Starts

Seasonally adjusted annual rate, millions of units:

September: 1.58 million

Source: Commerce Department