Industrial Output in U.S. Rises and Housing Starts Stay Near 12-Year Highs
U.S. Economy: Industrial Output Rises, Housing Strong (Update2)
(Adds closing markets in 7th-8th paragraphs.)
Washington, March 16 (Bloomberg) -- U.S. industrial
production unexpectedly rose in February, led by a fifth straight
monthly gain in factory output, and starts of new homes stayed
near a 12-year high, the latest signs the economy is powering
ahead as it heads into its ninth year of expansion.
''We're starting to hit on all cylinders'' after a year of
weak export demand, said Paul Kasriel, an economist at the
Northern Trust Co. in Chicago. ''Manufacturing is coming back.
That was the weak link in 1998.''
Industrial output rose 0.2 percent last month, the Federal
Reserve said. Analysts were predicting production to be
unchanged, as it was in January. The plant-use rate, which
measures industrial capacity in use, fell a tenth of a point to
80.3 percent in February, the lowest since August 1992 and a sign
inflation-causing production bottlenecks aren't likely to
develop.
Housing starts fell 0.6 percent in February to an annual
rate of 1.799 million units, not far from the 12-year high of
1.810 million in January. Moreover, starts of single-family homes
rose 1.1 percent last month to a rate of 1.413 million, the
strongest pace since December 1978, the Commerce Department said.
The ability of American workers to produce more for less
cost is fueling the expansion, Federal Reserve Chairman Alan
Greenspan said today. That puts him in the camp who say one-time
benefits from lower oil prices and low-cost goods from overseas
aren't the only reason inflation is staying low.
''These accomplishments are doubtless partly the result of
influences that may prove transitory, but a number of fundamental
strengths imply more lasting benefits,'' Greenspan told said in a
speech to the Independent Banks Association of America in San
Francisco.
Low Inflation
Greenspan's comments helped send Treasury bonds higher
because they suggest the Fed has little reason to raise the
overnight bank lending rate. The Treasury's benchmark 30-year
bond rose 1/2 point in late afternoon trading, pushing down its
yield more than 4 basis points to 5.47 percent.
The Dow Jones Industrial Average broke above 10,000 for the
first time in morning trading and then retreated. The Dow fell 28
points, or 0.28 percent, to close at 9930.74. The Nasdaq
Composite Index rose 8 points, or 0.32 percent, to close at
2439.24.
''The Fed can't get any better inflation news than it has
this month -- the plant-use rate is down, the producer price
index is down and earnings have slowed,'' said Astrid Adolfson,
an economist at MCM MoneyWatch in New York.
U.S. business investment has risen for seven years in a row,
the longest such stretch since the government began keeping
records in 1929. These investments in plants and equipment have
boosted productivity, while in some case it's resulted in job
cuts.
Seattle-based Boeing Co., the world's biggest aircraft
builder, said it will trim more jobs this year than previously
planned from its commercial-airplane division because it's making
speedier progress in cutting factory costs.
Industrial Production
The Fed's industrial production report showed that
manufacturing output advanced 0.2 percent in February. Mining
output rose 0.4 percent for the first increase in a year. Output
at utilities decreased 0.6 percent.
Production of durable goods rose 0.5 percent last month
after rising 0.2 percent in January. Non-durable goods production
fell 0.2 in February after falling 0.1 percent. Business
equipment output, including computers, rose 0.2 percent.
Strength in housing has kept some factories humming, and
helped bolster a 5.7 percent increase in production of household
appliances in February.
The auto industry has also benefited from the strong
economy, and motor vehicle production -- especially of trucks --
held steady last month. General Motors Corp., the world's largest
automaker, said its February U.S. light vehicle sales rose 18
percent, beating estimates and helping push industry-wide sales
up 13 percent to a record for the month.
Ford Motor Co., DaimlerChrysler AG, Toyota Motor Corp. and
Honda Motor Co. also reported strong February sales.
Housing Market
A key question for housing in the months ahead is the recent
rise in mortgage rates. The average 30-year mortgage rate rose
last week to the highest level since the third week of May,
according to Freddie Mac. The average rate rose to 7.11 percent
in the week that ended Friday.
Initially, higher mortgage rates will entice buyers who had
been fence-sitting and who want to buy before rates go any
higher.
That won't last long, though. ''Higher mortgage rates will
eventually bring the housing market back to earth,'' said Diane
Swonk, deputy chief economist at Bank One Corp. in Chicago.
''Mortgage applications have already shown signs of slowing.''
The Mortgage Banker's Association mortgage applications
index declined 10.7 percent in the week ended March 5.
Expected Decline
Swonk expects home sales to decline 1.7 percent this year as
activity slows in the second half.
In January, total starts increased a revised 3.4 percent to
a 1.810 million annual rate -- the highest level in 12 years --
previously reported as a rise of 3.8 percent to 1.804 million
units. What's more, housing starts totaled 1.617 million last
year, up 9.7 percent from 1.474 million in 1997 and the highest
since 1987, when they stood at 1.621 million. Additionally, a
record 887,000 new homes were sold in 1998, smashing the previous
record of 819,000 set in 1977.
The Commerce Department also said permits for new housing
construction dipped 1.9 percent in February to 1.745 million at a
seasonally adjusted annual rate, though permits for single-family
homes rose 2.7 percent to a record high 1.309 million.
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