Housing, Factory Declines Probably Eased: U.S. Economy Preview

By Shobhana Chandra

Aug. 16 (Bloomberg) -- The housing and manufacturingdeclines that pushed the U.S. into the worst recession sincethe 1930s probably eased further, putting an economic recoverywithin reach, economists said reports this week will show.

Builders broke ground on new homes in July at the fastestpace in eight months, according to the median of 60 forecastsin a Bloomberg News survey ahead of a Commerce Departmentreport Aug. 18. Other figures may show sales of existing homesclimbed, manufacturing in the Northeast improved and theeconomic outlook strengthened.

“There’s broad enough stabilization in the economy to geta decent rebound,” said John Herrmann, president of HerrmannForecasting in Summit, New Jersey. “We’re seeing multiplesigns of a bottom in the housing market and by this time nextyear, homebuilding should be adding to growth.”

The reports signal that government efforts to stem theslide, including credits for first-time homebuyers and cash-for-clunkers, are starting to take hold. A report that may showmore than half a million workers filed claims for unemploymentbenefits last week will serve as a reminder that mounting joblosses are likely to restrain consumer spending and growth.

Housing starts rose 2.7 percent to an annual rate of598,000, according to economists surveyed. Building permits, asign of future construction and a component of the index ofleading economic indicators, likely rose to a 575,000 pace, thehighest level since November.

More Contracts

Toll Brothers Inc., the largest U.S. luxury homebuilder,last week reported third-quarter revenue that exceededanalysts’ estimates. While sales fell 42 percent, new homecontracts rose over the year-earlier quarter for the first timesince 2005, the Horsham, Pennsylvania-based company said.

“Although some of our markets are still stuck in the mud,many are improving,” Chairman and Chief Executive OfficerRobert Toll said on an Aug. 12 conference call. “It does feelas if the fence sitters are looking for reasons to jump in onthe side of buying.”

The Standard & Poor’s homebuilder supercomposite index,which includes Toll, has gained 31 percent since the beginningof July compared with a 9.2 percent increase for the S&P 500.

Tomorrow, figures from the National Association of HomeBuilders/Wells Fargo may show an index of builder confidenceclimbed in August to the highest reading in more than a year,according to the survey.

Sales Climb

Sales of previously owned homes probably rose to a 10-month high annual rate of 5 million, according to the surveymedian. The National Association of Realtors will report thefigures on Aug. 21.

Government steps to shore up housing have includedoffering lenders incentives to modify the terms of delinquentmortgages, Fed purchases of mortgage-backed securities to freeup funding for home loans, and an $8,000 tax credit for first-time home buyers for transactions completed before Dec. 1.

Foreclosures remain a threat. About $3.4 trillion worth ofhouses are at risk of default because the owners owe more thanthe property is worth, Santa Ana, California-based FirstAmerican CoreLogic said last week.

At the same time, price declines, driven largely byforeclosures, are helping lift demand. Homeowners cut askingprices by $27.8 billion in the year through Aug. 1, accordingto Trulia Inc., a San Francisco-based real estate dataprovider. Some of the biggest reductions were in Nevada andFlorida, states hardest hit by the property slump.

Manufacturing Improves

Reports from regional Fed banks may show manufacturing isalso stabilizing. The Fed Bank of New York’s Empire Stateindex, due tomorrow, is projected to show that manufacturing inthe state expanded in August for the first time in more than ayear. On Aug. 20, figures from the Philadelphia Fed may showthe region’s factories contracted at the slowest pace sinceSeptember, the last time it expanded.

The same day, the New York-based Conference Board mayreport its leading indicators index, a measure of the economy’slikely path over the next three to six months, rose in July forthe fourth consecutive month, economists said. It would be thelongest stretch of gains since 2004.

Finally, the Labor Department on Aug. 20 may report that550,000 workers filed jobless claims last week compared with558,000 the prior week. While down from the first half of theyear, claims remain higher than the 350,000 per week filed onaverage during the six-year expansion that ended in 2007.

                         Bloomberg Survey

===============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
===============================================================
Empire Manu. Index        8/17      Aug.      -0.6      3.0
Net Long Term TICS $ Bl   8/17      June     -19.8      17.5
Total TICS $ Blns         8/17      June     -66.6      23.0
NAHB Housing Index        8/17      Aug.       17        18
PPI  MOM%                 8/18      July      1.8%     -0.3%
Core PPI MOM%             8/18      July      0.5%      0.1%
PPI  YOY%                 8/18      July     -4.6%     -5.9%
Core PPI YOY%             8/18      July      3.3%      2.8%
Housing Starts ,000’s     8/18      July      582       598
Building Permits ,000’s   8/18      July      570       575
Initial Claims ,000’s     8/20     8-Aug      558       550
Cont. Claims ,000’s       8/20     1-Aug      6202      6228
Philly Fed Index          8/20      Aug.      -7.5      -2.0
LEI  MOM%                 8/20      July      0.7%      0.7%
Exist Homes Mlns          8/21      July      4.89      5.00
Exist Homes MOM%          8/21      July      3.6%      2.1%
===============================================================

To contact the reporter on this story:Shobhana Chandra in Washington atschandra1@bloomberg.net