Factories hum, housing mixed
U.S. factory output picked up in April and groundbreaking on new homes unexpectedly rose, but permits for future home building slid to their lowest level in nearly a decade, signaling ongoing housing sector woes.
A Federal Reserve report released Wednesday showed output at U.S. factories, mines and utilities rose a greater-than-expected 0.7% in April, with the amount of industrial capacity tapped climbing to 81.6%, also above Wall Street forecasts.
Meanwhile, the Commerce Department said that as housing starts unexpectedly rose 2.5% to a seasonally adjusted annual pace of 1.528 million units, building permits sank to the slowest pace since June 1997.
The data offered a mixed picture of the economy’s health, but most economists are still expecting tepid growth through the first half of this year as the economy squeezes out of its housing market troubles.
“Make no mistake about it, residential investment will take another big bite out of [second quarter] GDP,” said Ken Mayland, president of ClearView Economics.
The rise in housing starts was a surprise because economists had expected them to slip to a 1.490-million unit pace in April from the 1.518-million rate first reported for March. The government revised down the March figure to 1.491 million.
But building permits, which signal future construction plans, dropped 8.9% in April to 1.429 million units, the slowest pace in nearly 10 years and well below expectations for 1.525 million units.
“This is a half-full, half-empty report because housing starts came in stronger than expected but permits are very weak,” said Michael Cheah, portfolio manager at AIG SunAmerica Asset Management in Jersey City, N.J.
“My inclination is to think the half-empty will win because much weaker permits suggest home builders are looking to retrench home building and that would lead to cutbacks in housing-related jobs,” he added.
Even though housing starts increased in April to the fastest pace since December, they were down 16% from a year earlier and building permits were off 28.1% from a year ago.
A separate report Wednesday showed U.S. mortgage applications fell last week for the first time in four weeks, weighed down by sagging demand for home purchase loans.
The Mortgage Bankers Assn. said its seasonally adjusted index of mortgage application activity, which includes refinancing and purchasing loans, dipped 0.8% for the week ended May 11.
The latest reports reinforced the pessimistic outlook from the National Assn. of Home Builders, which said Tuesday that builder sentiment sank in April amid tighter mortgage standards and order cancellations.
