Consumers' resilience is shown again Single-family housing starts up 5% in November

2 key economic reports

Industrial output declines 0.3%, but appliances are strong

National economy

December 17, 1998|By BLOOMBERG NEWS

WASHINGTON -- U.S. builders began work on single-family homes in November at the fastest pace in almost 15 years. And that strength helped boost production of appliances and building materials, offsetting a decline in auto output last month, separate government reports showed yesterday.

"The one constant of 1998 is the resilience of the American consumer," said Diane Swonk, deputy chief economist at Bank One Corp. in Chicago. "Consumers are still going strong, and offsetting losses abroad."

Starts of single-family homes increased 5.0 percent in November to a seasonally adjusted annual rate of 1.353 million, the strongest since February 1984, the Commerce Department said. slump in starts of multifamily dwellings pushed overall housing starts down 2.7 percent last month, after an 8.0 percent increase in October.

Factory production of appliances jumped 2.5 percent in November and building materials output rose 0.7 percent, a Federal Reserve report showed. That provided a level of support that kept manufacturing output unchanged in November, as auto makers and other goods producers reported declines.

And overall industrial production declined 0.3 percent last month after rising 0.2 percent in October, as utility and mining output decreased. "This simply reflects the unseasonably warm weather," said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, N.Y.

The 26.9 percent drop in multifamily home construction pushed down overall starts last month to a seasonally adjusted annual rate of 1.649 million from October's 1.694 million-unit pace.

"I'd have to pin this on statistical volatility," though "we are seeing symptoms of overbuilding on the multifamily side," said David Seiders, chief economist at the National Association of Home Builders.

Moreover, November's pace of new starts was 8.3 percent above that of November 1997. And building permits, which also fell last month, nevertheless were 12 percent higher than a year earlier, a sign of strength ahead.

Permits for new housing construction decreased 2.3 percent in November to 1.651 million at a seasonally adjusted annual rate. That's up, though, from 1.475 million in November 1997.

Builders expect their market to stay strong. The National Association of Home Builders' housing market index was unchanged at 78 in December, the highest reading since the group started the survey 13 years ago.

Low mortgage rates have driven the housing market to record levels. The average rate on a 30-year fixed mortgage has stayed below 7 percent for about six months straight, according to the Mortgage Bankers Association of America.

The overall decline in November industrial production was paced by a 3.4 percent drop in utility output and a 1.2 percent decline in mining.

Increases at some manufacturers offset a 0.6 percent decline in auto output, as production returned to a more normal pace after General Motors Corp.'s effort to rebuild inventories led to an outsized 5.0 percent gain in October.

The plant-use rate, which measures the amount of industrial capacity in use, fell to 80.6 percent in November -- the lowest since August 1993 -- from 81.2 percent during October, the Fed said.

Industrial production has registered only two increases since June -- October's gain and a 1.4 percent advance in August that was triggered by the end of the GM strike. Otherwise, factories have been hurt by weak export demand, falling import prices and excess industrial capacity stemming from the economy slowdown in Asia. Manufacturers have cut 245,000 jobs since March.

The Labor Department's import price index, a price gauge of imported goods and raw materials, fell 0.3 percent last month after rising 0.2 percent in October.

Import prices last month were 6.3 percent lower than they were in November 1997. While the drop in the cost of imported merchandise is benefiting consumers, it's hurting U.S. companies that need to raise prices to offset business costs.

Pub Date: 12/17/98

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