The declining fortunes of the housing market have brought back into focus fears of a broader economic downturn. But with other data on Tuesday showing industrial production rose to a record high last month despite a high interest rate environment, the Federal Reserve is expected to remain on an aggressive monetary policy tightening path. “Reading the tea leaves in the economy hasn’t been this difficult in years,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Industrial production has fallen in every economic downturn in history, so this month’s record high is inconsistent with a recession.” Sign up now for FREE unlimited access to Reuters.com Register Housing starts fell 9.6% to a seasonally adjusted annual rate of 1.446 million units last month, the slowest level since February 2021. The June figure was revised slightly higher to 1.599 million units from 1.559 million units that had been reported previously. Economists polled by Reuters had expected starts to fall to 1.540 million units. Single-family home starts, which account for the largest share of home construction, fell 10.1% to 916,000 units, the lowest level since June 2020. Single-family home starts fell in the Midwest and the densely populated South, but rose in the West and Northeast. Starts for housing projects with five or more units fell 10.0% to 514,000 units. Multifamily housing construction continues to be supported by strong demand for rental apartments, with rising borrowing costs driving many Americans away from homeownership. Permits for future home construction fell 1.3% to 1.674 million units. Building permits for single-family homes fell 4.3% to 928,000 units. Permits for multifamily housing projects rose 2.5% to 693,000 units. The Fed, which is struggling to bring inflation back to the US central bank’s 2% target, has raised its policy rate by 225 basis points since March. Mortgage rates, which move in tandem with US Treasury yields, have soared even higher. The 30-year fixed-rate mortgage is averaging around 5.22%, up from 3.22% at the start of the year, according to data from mortgage lender Freddie Mac. Residential fixed investment fell at the sharpest pace in two years in the second quarter, contributing to the second straight quarterly decline in gross domestic product during the period. More pain is likely yet to come for the housing market. A survey on Monday showed that the National Association of Home Builders/Wells Fargo Housing Market Sentiment Index fell for an eighth straight month in August, falling below the breakeven mark of 50 for the first time since May 2020. Rising construction costs and interest rates mortgages were largely blamed for the decline. Stocks on Wall Street were mixed trading. The dollar was flat against a basket of currencies. US bond prices fell.
WIDE CONVERSION PROFITS
While housing struggles, another rate-sensitive sector is moving forward for now. In a separate report on Tuesday, the Fed said manufacturing output rebounded 0.7 percent in July after falling 0.4 percent in June. Economists had forecast factory output to rise 0.2%. Output rose 3.2% compared to July 2021. Manufacturing, which accounts for 11.9% of the US economy, continues to be supported by strong demand for goods, even as spending gradually returns to services. However, the risks are growing, with retailers consuming excess inventory, especially apparel. A strong dollar as a result of tighter monetary policy could make US exports more expensive. Production at auto plants rose 6.6 percent last month. Excluding motor vehicles, manufacturing rose 0.3%. Production of manufactured consumer durables rose 3.5%, while production of nondurable consumer goods fell 0.3%. Mining output rose 0.7%, continuing to be supported by oil and gas extraction. Production at utilities fell by 0.8%. Rising output in manufacturing and mining helped lift the headline industrial production index by 0.6 percent to a record high of 104.8. Industrial production was unchanged in June. Factory production The strong manufacturing output contrasts sharply with regional factory surveys that have shown a sharp deterioration in the business climate. “Recessions are usually a loss of faith and it appears that sentiment among manufacturers is frayed,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “However, it is important to watch what manufacturers do rather than say. For now, manufacturers are not acting as if the economy is in a recession or headed for a recession.” Although higher borrowing costs are freezing the housing market, a complete collapse is unlikely due to a critical shortage of single-family homes for sale, which is keeping prices high. Building fewer homes due to economic constraints could be a conundrum for the Fed, which is seeking to lower home prices by slowing demand for homes. “Lower construction will limit housing supply and potentially reduce the impact of higher interest rates on home prices,” said Isfar Munir, an economist at Citigroup in New York. The number of homes approved for construction that has not yet begun rose 5.0% to 296,000 units. Pending housing for single-family homes rose 2.1% to 146,000 units, with the completion rate for that segment falling 0.8%. The inventory of single-family homes under construction decreased by 1.2% to 816,000 units. Sign up now for FREE unlimited access to Reuters.com Register Reporting by Lucia Mutikani Editing by Mark Porter, Mark Potter and Paul Simao Our Standards: The Thomson Reuters Trust Principles.
