Housing Starts Dip; Confidence Stable
U.S. consumer sentiment stabilized in early August after a stock market rout, but housing starts slipped in July from lofty levels even as mortgage rates fell, reports said Friday, suggesting an uneven and fragile recovery.
In addition, consumer inflation remained tightly contained in July, a separate Labor Department report said. That leaves the Federal Reserve, already worried about further weakness, room to cut interest rates if the economy stalls.
But for now, a halt in the slide in consumer sentiment provided some hope that consumer spending, which drives about two-thirds of the economy, will extend its aid to an economy beset by weak corporate profits, sluggish growth and a delay in job creation after last year’s recession.
“Looking forward, consumers remain cautious in their outlook,” said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis. “But with consumer confidence stabilizing, income rising and an improving stock market, consumers should be spending at a moderate pace.”
The University of Michigan’s consumer sentiment index edged down to 87.9 in early August, compared with a final 88.1 in July, holding at its lowest level since November.
Separately, housing starts fell for a second straight month in July but remained at historically robust levels, down 2.7% to a seasonally adjusted annual rate of 1.65 million units, the Commerce Department said. That followed a revised 2.7% drop in starts in June to a 1.7-million annual pace.
The consumer price index, the main U.S. inflation gauge, rose just 0.1% last month after an identical advance in June, the Labor Department said. Excluding food and energy prices, which can vary widely from month to month, the core CPI was up 0.2% in July after a 0.1% climb in June.
The summer’s slide in consumer sentiment halted in early August as Americans took heart from the stock market’s recovery from five-year lows struck in July.
The decline in housing starts in July came after a strong showing in the spring and early summer and was mostly expected given that some builders were likely to turn more cautious in light of the stock market’s woes.
Historically low interest rates have helped spur housing along for most of this year. Rates on 30-year conventional mortgages fell to 6.49% in July, said mortgage financer Freddie Mac. Rates fell further in August, hitting a record low of 6.22% in the week ended Aug. 16, compared with 6.92% one year earlier. Meanwhile, housing permits, an indicator of planned construction, were off only a bit in July, dipping 0.5% to a 1.7-million annual clip.
The CPI rose 1.5% for the 12 months ended in July and was up 2.2% over the same period when stripped of food and energy costs.
