WASHINGTON: US homebuilding tumbled from more than a 12-year high in September, but single-family home construction rose for a fourth straight month, suggesting the housing market remains supported by lower mortgage rates even as the economy is slowing.
The moderation in economic growth was underscored by other data on Thursday showing manufacturing output falling last month and factory activity in the mid-Atlantic region decelerating in October. The economy is being constrained by a 15-month trade war between the United States and China, which has dented business sentiment and caused a drop in capital expenditures.
Ironically, manufacturing has borne the brunt of the trade tariffs, which the White House argues are necessary to protect industries from what it says is unfair foreign competition. Other parts of the economy are also starting to show cracks from the trade war, with retail sales dropping in September for the first time in seven months and services sector growth slowing.
Many economists expect the Federal Reserve to cut interest rates for the third time later this month to limit the drag on the economy from the trade war and keep the longest expansion on record, now in its 11th year, on track.
“It inches them forward to taking out a little more insurance to help support the economy that continues to face the headwinds of reduced world trade from tariffs,” said Chris Rupkey, chief economist at MUFG in New York.
Housing starts declined 9.4 per cent to a seasonally adjusted annual rate of 1.256 million units last month as construction in the volatile multi-family housing segment dropped, the Commerce Department said. Data for August was revised higher to show homebuilding accelerating to a pace of 1.386 million units, which was the highest level since June 2007, instead of marching to a rate of 1.364 million units as previously reported.
Economists polled by Reuters had forecast housing starts decreasing to a pace of 1.320 million units in September. Housing starts rose 1.6 per cent on a year-on-year basis in September.
The housing market, the most sensitive sector to interest rates, has perked up in recent months as mortgage rates have plunged from last year’s multi-year highs.
But the sector, which accounts for about 3.1 per cent of the economy, continues to be hampered by land and labour shortages. A survey on Wednesday showed confidence among homebuilders jumped to a more than 1-1/2-year high in October.
The 30-year fixed mortgage rate has dropped more than 135 basis points to an average of 3.57 per cent, according to data from mortgage finance agency Freddie Mac.
Economists expect a mild rebound in residential investment in the third quarter after it contracted for six straight quarters, the longest such stretch since the 2007-2009 recession.
Single-family homebuilding, which accounts for the largest share of the housing market, rose 0.3 per cent to a rate of 918,000 units in September, the highest level since January. Starts for the volatile multi-family housing segment plunged 28.2 per cent to a rate of 338,000 units in September.
US financial markets were little moved by the data as investors focused on news that Britain had clinched an eleventh-hour deal on its exit from the European Union. The dollar weakened against a basket of currencies, while stocks on Wall Street rose. US Treasury prices fell.
In a separate report on Thursday, the Fed said manufacturing production fell 0.5 per cent last month as a strike by about 48,000 workers at General Motors hammered motor vehicle output. Production at factories increased 0.6 per cent in August.
Excluding motor vehicles, manufacturing output dropped 0.2 per cent after surging 0.7 per cent in August. — Reuters
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