Factories boost output as homebuilding holds up

Factories churned out more cars and appliances in December and homebuilders overcame inclement weather to begin work on more homes than projected, putting the U.S. economy on a strong footing heading into 2014.
Output at factories, mines and utilities climbed 0.3 percent to cap the strongest quarter since 2010, according to Federal Reserve figures issued Jan. 17 in Washington. Housing starts fell 9.8 percent to a 999,000 annualized rate following November’s 1.11 million pace that was the highest in six years, the Commerce Department reported.
Housing and manufacturing will be sources of strength for the economic expansion as gains in consumer spending propel demand for building materials, furniture and the newest model car. Another recent report showing employers had more openings in November than at any time in more than five years means hiring will probably rebound following a disappointing December gain.
“When I look at 2014, I’m looking at continued solid growth,” said Michael Carey, chief economist for North America at Credit Agricole CIB in New York, who was among the most accurate forecasters of the housing and production reports over the past two years, according to data compiled by Bloomberg. Housing “is going to be a contributor to growth in the next year, clearly, and the industrial sector as well.”
The median estimate of 83 economists surveyed by Bloomberg projected U.S. housing starts would drop to a 985,000 annualized rate. Estimates ranged from 925,000 to 1.08 million. The Commerce Department revised the November reading up to 1.11 million, which was the most since November 2007.
For all of 2013, builders began work on 923,400 homes, up 18.3 percent from the prior year and the most since 2007’s 1.36 million.
Permits for future U.S. housing projects declined, a sign activity may pause in early 2014, the Jan. 17 report also showed. Applications fell 3 percent to a 986,000 pace in December, less than the projected 1.01 million, according to the Bloomberg survey median.
Weather may have played a role in setting back some builders, auto dealers and retailers due to the coldest December since 2009. Snowfall was 21 percent above normal, according to weather-data provider Planalytics Inc. Still, labor-market gains and rising real estate values have developers upbeat about the industry’s prospects. Homebuilder sentiment in January held near its highest level in eight years, dipping to 56 from 57 in December. Readings greater than 50 mean more respondents report good market conditions.
Not all the news was good. Consumer confidence unexpectedly declined in January, a sign spending may take time to accelerate early this year. The Thomson Reuters/University of Michigan preliminary sentiment index fell to 80.4 from 82.5 in December.
“The sentiment index is still at a respectable level,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York. Still “it tells us we’re not breaking out into new territory.”
Chillier-than-normal temperatures were less disruptive to factories in December. The gain in production that month followed a 1 percent increase in November. For the final three months of 2013, output climbed at a 6.8 percent annualized pace, the most since the second quarter of 2010.
“There’s been a pickup in manufacturing in the last couple months,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, N.Y., the top-ranked forecaster of production in the past two years, according to data compiled by Bloomberg. “Certainly you have to start with the consumer in the last couple of months and there’s been a pretty strong pace in goods consumption.”
Manufacturing, which makes up 75 percent of total production, advanced 0.4 percent in December after a 0.6 percent gain. Economists projected a 0.3 percent increase in December, according to the Bloomberg survey median. Factory output in the fourth quarter increased at a 6.2 percent annualized rate, the strongest since the first three months of 2012.
December output increased over a broad swath of industries, including autos, appliances, furniture, home electronics and clothing.
Automakers completed their best sales year since 2007 and are upbeat about the year ahead. Dearborn, Mich.,-based Ford Motor Co., the second-largest U.S. automaker, plans to add 5,000 jobs in the U.S. as it introduces 16 new vehicles in North America this year. •

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