Energy Prices Slow Growth at Factories
Higher energy prices slowed growth at U.S. factories in January, and a jump in home building took construction spending to record highs in December, seemingly in defiance of a cooling housing market, according to data released Wednesday.
Other reports indicated that although private spending on home building was at a record, the housing market was feeling the pinch of higher interest rates as mortgage applications fell last week for the first time in four weeks and pending home sales hit a near two-year low.
The Institute for Supply Management said its index of manufacturing activity fell to 54.8 in January from December’s 55.6 reading. The index has stayed above 50, denoting expansion, for about three years.
The new-orders component, a key barometer of future growth, fell to 58.0 from 59.1, indicating that orders were still coming in but growing at a slightly slower rate.
“The ISM manufacturing index came in at a decent level in January, just slightly below expectations, but still high enough to suggest that the manufacturing sector is expanding at a steady-as-she-goes pace,” said Patrick Fearon, senior economist at A.G. Edwards & Sons in St. Louis.
Rising oil prices could squeeze manufacturers’ profit margins in the coming months, and two regional reports last week indicated that the sector might be losing steam as a result.
The institute’s gauge of prices paid for raw materials rose to 65 from 63, and its employment index fell to 51.3 from 53.6, indicating that job creation at factories was still on the rise.
A report by the Commerce Department indicated that construction spending rose 1% to a seasonally adjusted annual rate of $1.16 trillion from an upwardly revised $1.15 trillion in November.
Analysts had expected a rise of just 0.2%.
The Mortgage Bankers Assn. said U.S. mortgage applications fell last week for the first time in four weeks, led by a decline in home purchase loans as interest rates rose for the first time since November.
But analysts said the slide did not necessarily presage a true slowdown in the booming U.S. housing market.
“People are trying to judge the degree of the slowdown and whether it is a slowdown and if they are on the margins in terms of making a final decision. A small interest rate change one way or the other can have the effect of changing people’s minds,” said Douglas Duncan, chief economist of the Mortgage Bankers Assn.
In another housing report, the National Assn. of Realtors said its pending home sales index, based on contracts signed in December, fell to 116.4, down 3% from November, and was at its lowest since February 2004.
