US housing data mixed; consumer confidence slumps
Reuters
First Posted 06:48:00 05/17/2008
WASHINGTON—Groundbreaking on single-family homes in the United States in April dropped to the slowest pace since 1991 while consumer confidence hit a 28-year trough, showing the economy still on shaky ground.
While the government data on Friday showed starts on single-family homes slumped, construction on all types of housing—including apartment buildings and condominiums—jumped unexpectedly by 8.2 percent to an annual rate of 1.032 million units, surprising financial markets as they had expected a slight drop.
However, the gain came entirely from apartments and condominiums, while starts on single-family homes fell 1.7 percent to 692,000, the slowest rate since January 1991.
A separate report from Reuters/University of Michigan showing its index of consumer confidence dropped to 59.5 in May—the lowest since June 1980—further took the glow off better overall starts and put stock prices into negative territory.
"Consumers are feeling poorly about current conditions, which is a reflection of high energy prices, deteriorating labor market conditions, and falling home values," said economist Gary Thayer of Wachovia Securities in St. Louis, Missouri.
The survey found consumers, who fuel two-thirds of national economic activity through their purchases of goods and services, in a bleak mood. "Record numbers of consumers viewed the economy in recession and saw little hope of recovery anytime soon," it said.
Fear of rising food and fuel prices sent one-year inflation expectations surging to 5.2 percent—the highest level since February 1982—from 4.8 percent in April.
That creates a dilemma for Federal Reserve policymakers seeking to balance their concern about rising inflation pressures against a wish to stimulate the flagging economy by continuing to cut interest rates as it has been doing.
There were some positive signs in the housing starts story, including the first pickup in five months in applications for new building permits, which rose 4.9 percent to an annual rate of 978,000.
The jump in overall April starts was the biggest monthly increase since a 14-percent rise in January 2006, while the gain in permits was the largest since a 6.7-percent gain in December 2006.
But the report showed single-family home building declined to a rate of 692,000 units from 704,000—the lowest monthly rate since 604,000 in January 1991.
Looking for bottom
"Single-family starts continue to show weakness and (are) coming off a 17-year low," said George Adell, a fixed-income securities strategist at Commerce Capital Markets in Jupiter, Florida. "We can't say we've hit a bottom, but it's better than what we've seen."
The president of the Federal Reserve Bank of Atlanta, Dennis Lockhart, said on Friday that the economy faces a multi-pronged challenge in coming months.
"I think we are dealing with three principal issues right now. One is a weak economy, the second is elevated inflation levels and the third is finding a bottom for the economy, principally through the housing sector," Lockhart said.
Treasury Secretary Henry Paulson and numerous Fed policymakers have identified the housing downturn as the biggest single risk for the economy and Congress has been working feverishly on proposals for guaranteeing shaky mortgage loans to try to save homeowners from losing their homes.
On Thursday night, housing industry sources indicated that leaders of the US Senate Banking Committee had reached a deal on a broad housing rescue plan in which mortgage giants Fannie Mae and Freddie Mac will support a federal mortgage insurance fund.
The $300-billion fund would be run by the Federal Housing Administration and would offer loan guarantees to help refinance distressed mortgages, with borrowers agreeing to forgive portions of troubled loans.
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