Home Starts, Leading Index Probably Rose: U.S. Economy Preview

Home Starts, Leading Index Probably Rose: U.S. Economy Preview


May 17 (Bloomberg) -- Builders probably broke ground on more houses in April and a measure of the U.S. economic outlook rose for the first time in almost a year, adding to signs the recession was abating, economists said before reports this week.

Housing starts increased 2 percent to an annual rate of 520,000 last month, according to the median forecast of economists surveyed by Bloomberg News before a Commerce Department report on May 19. The index of leading economic indicators probably climbed 0.8 percent, figures from the Conference Board may show.

An easing in the housing slump, now in its fourth year, is an essential element of most forecasts for an economic recovery later this year. Rising stock prices and improving consumer confidence are among the components of the leading index that are stoking speculation the economy will begin to grow again in the next six months.

“Starts reached their trough earlier this year and are going to be on a very slow path to recovery through the rest of the year,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “It does look like the recession is coming to an end.”

The leading indicators index, a measure of the economy’s likely path over the next three to six months, is due from the New York-based private research group on May 21.

Commerce’s housing report may also show building permits, a sign of future construction and another component of the leading index, rose 2.7 percent to a 530,000 rate in April from the prior month’s record low.

More Stable

Housing data in recent weeks have shown signs of stabilization. Existing home sales, while reaching a decade-low in January, have held within a narrow range centered on a 4.6 million annual pace over the last five months. Sales of new houses, while still depressed, have bounced from a record low reached in January.

Foreclosure-driven declines in prices have contributed to stabilizing the resales market. Distressed sales have made up as much as 50 percent of existing home purchases in recent months, according to the National Association of Realtors.

The biggest contraction in residential construction on record has helped builders trim the glut of properties on the market even as sales faltered. The number of unsold new houses dropped in March to the lowest level since 2002, according to Commerce figures.

Less Pessimistic

Builders are becoming less pessimistic. The National Association of Home Builders/Wells Fargo’s sentiment index probably rose in May to its highest level in eight months, economists forecast a report tomorrow may show.

Still, construction firms continue to feel the pain of having to drop prices to spur demand. D.R. Horton Inc., the largest U.S. homebuilder by market value, on May 5 reported a quarterly loss that exceeded analysts’ estimates as orders dropped 45 percent from a year earlier.

“Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of both new and existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence,” said Chairman Donald Horton in a statement.

Financing also remains scarce, a survey of banks by the Federal Reserve showed this month. A larger share of lenders tightened terms on residential mortgages compared with the prior survey, the Fed said on May 4. At the same time, about 35 percent of domestic respondents saw increased demand for prime mortgages, the first gain in at least two years.

Stocks, Sentiment

Last month’s jump in the leading index would be the first since June 2008, and the biggest since November 2005. The 12 percent surge in the Standard & Poor’s 500 index average, and the biggest increase in consumers’ economic outlook in more than two years propelled the gauge higher.

The Fed on May 20 will release the minutes of its April 29 monetary policy meeting, when it refrained from increasing purchases of securities, saying the economy was showing signs of stability.

The following day, a survey from the Fed Bank of Philadelphia may show manufacturing in eastern Pennsylvania, southern New Jersey and Delaware contracted this month at the slowest rate since September, adding to signs the factory slump is easing.

Finally, the Labor Department may report May 21 that initial jobless claims fell in the week ended May 16 after the shutdown of plants by Chrysler LLC contributed to a jump in applications the prior week, economists forecast.

BLOOMBERG