Housing Keeps Shining Amid a Slump in Manufacturing

Housing starts rose in December for the third month in four, confirming that home building is a bright spot in a slowing U.S. economy.

An index of manufacturing for January dived, giving the Federal Reserve another reason to cut interest rates later this month.

A rise in construction of single-family homes led to an overall 0.3% increase in housing starts last month to an annual rate of 1.575 million units, the most since May, the Commerce Department said.

An index measuring manufacturing in the Philadelphia area plunged to minus 36.8 this month--the worst reading since December 1990--from December’s minus 4.2, the Philadelphia Federal Reserve Bank said.

“We know that manufacturing is in recession, but housing and construction are extremely upbeat,” said Richard Yamarone, senior economist at Argus Research Corp. in New York. “This economy continues to expand with a manufacturing recession.”

Though growth slowed in the last half of 2000--and may have stalled in the early part of this year--analysts say the weakness in manufacturing probably won’t cause the rest of the economy to stop growing altogether.

A report from the Labor Department showed first-time jobless claims fell 37,000 to 306,000 for the week ended Jan. 13. The less-volatile four-week moving average of claims fell to 350,000 last week from 362,250.

The resilient housing market is helping prolong the expansion even as manufacturing slumps. Last year’s starts of new housing construction marked the third-best year for builders since the economic expansion began in 1991.

Builders in December were responding to the increase in new-home sales several months earlier. In September, sales of single- family homes rose to 953,000 units at an annual rate, the best in almost two years.

Starts of single-family homes rose 6% in December to 1.313 million units, the fastest pace since last March. December starts of multifamily homes fell 20.8% to a 262,000-unit annual rate, following an 11.4% increase in the previous month.

There was a caution sign in the report. Building permits, an indicator of future construction, fell 6.6% to 1.493 million units at an annual rate after rising 3.4% in November. The December pace was the slowest since 1.486 million in August.

The Philadelphia Fed’s report, which tracks manufacturing in eastern Pennsylvania, Delaware and southern New Jersey, had the third negative reading in four months. Negative figures signal a contraction in activity.

The Philadelphia Fed’s outlook index for six months from now fell to minus 16.3 in January from minus 4.2 in December. The outlook for future employment fell to minus 20.9 from December’s 4.4 reading.

The Philadelphia Fed report showed the new orders index falling to minus 30.9 in January--the lowest since a reading of minus 34.2 in August 1980--from 4 a month earlier.

The indexes subtract the percentage of companies surveyed that said their business is decreasing from the percentage reporting an increase. A negative index means falling production, orders or prices.

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Housing Starts

Seasonally adjusted annual rate, million of units:

December: 1.58 million

*

Source: Commerce Department Los Angeles Times