Home construction plunges to 17-year low
Drop suggests no end in sight
WASHINGTON - Builders started work in June on the fewest single-family US homes since 1991 and manufacturing in the Philadelphia region contracted for an eighth straight month, signaling the economic slowdown is worsening.
Construction starts fell to an annual pace of 647,000, the Commerce Department said yesterday. A change in New York City building codes spurred total starts, which include condominiums and apartment buildings, to a four-month high.
The figures underscore the housing recession was already deepening before the financial turmoil this month at Fannie Mae and Freddie Mac threatened to further curb mortgage financing. Yesterday's drop in the Philadelphia Federal Reserve's factory gauge showed manufacturers cut orders and employment in July as confidence in the economic outlook deteriorated.
"Hopes for a bottom" this year in home construction "are rapidly fading," said David Resler, chief economist at Nomura Securities International Inc. in New York. The housing recession "has been spilling over to manufacturing for months," contributing to "recessionary conditions," he said.
Housing starts in the Northeast, which includes New York, soared 242 percent in June.
The city's new construction codes tightened safety and environmental standards. Examples include requiring interconnected smoke alarms and so-called white roofs to reflect heat. Changes in the tax code covering the building of affordable housing units may have also influenced the reading.
"Anyone planning to build had a strong incentive to get started before the deadline," Lindsey Piegza, a market analyst at FTN Financial in New York, wrote in a note to clients.
The Philadelphia Fed's general economic index was minus 16.3 in July, lower than forecast, compared with minus 17.1 in June. Negative readings signal a decline, and the measure averaged 5.1 last year. The index of prices paid climbed to 75.6, the highest level since 1980, from 69.3.
"As manufacturers see the final demand for their products go down and inventories go up, they have to slow production and that means less employment," said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. "The pricing numbers are important, too, because it indicates that we're in a period of stagflation."
Total housing starts rose 9.1 percent to a 1.066 million pace from a revised 977,000 rate in May. Economists forecast a 960,000 reading in June, from a previously reported 975,000 for May, according to the median on 76 projections in a Bloomberg News survey.
Building permits rose 11.6 percent to a 1.091 million rate in June. Excluding multifamily applications in the Northeast, permits would have risen 0.7 percent.
Declines in construction probably will limit economic growth, even as tax rebates boost consumer spending. Residential building dropped at a 24.6 percent pace in the first quarter.
