December Home Building Should Be Up

The Federal Reserve’s volley of three interest rate increases last year has done little to halt U.S. consumer demand for new homes, a government report is expected to show this week. Starts of new housing construction, which the Commerce Department will report Wednesday, probably increased 0.5% in December to a seasonally adjusted 1.608 million, according to analysts. In November, starts fell 2.3%. Even though the rate on a traditional 30-year mortgage is the highest in nearly three years, housing is benefiting from the long U.S. economic expansion, with its low unemployment, rising incomes and stock market gains.

Meanwhile, many investors expect the central bank will opt for another increase in the overnight bank lending rate at its first policy meeting of the year on Feb. 1-2 in an effort to cool the economy and contain inflation. Federal Reserve Chairman Alan Greenspan hinted at such a possibility in a speech last week, and a Fed report on the nation’s economy set for release Wednesday is likely to be among the matters discussed at the February session. The report, known as the beige book, is likely to show continued tight labor markets, strong consumer spending and expansion in the manufacturing sector during December and early January.

Other economic reports due this week:

* The Commerce Department is scheduled to report Thursday on the trade balance. The figures will probably show that the trade deficit in goods and services was little changed in November--$25.4 billion versus a record $25.9 billion for October. The report will reflect strong consumer demand for imports, analysts said. At the current pace, the trade deficit for all of 1999 is expected to top the previous year’s record of $164.3 billion by almost $100 billion.

* The U.S. Treasury is expected to report on Friday a budget surplus of $30.4 billion for December, a reversal from the December 1998 budget deficit of $5.2 billion, analysts said.