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Housing Rebound Joined by U.S. Business Activity Pickup

By Michelle Jamrisko and Lorraine Woellert
December 28, 2012 4:11 PM EST 12 Comments

More Americans signed contracts to purchase homes in November and business activity improved this month as companies increased orders, signs the three-year-old U.S. expansion will endure a budget stalemate.

The National Association of Realtors said its index of pending sales of previously owned homes climbed 1.7 percent in November to 106.4, the highest level since April 2010. The MNI Chicago Report’s business barometer rose to a four-month high of 51.6 from November’s 50.4. A reading of 50 is the dividing line between expansion and contraction.

The Chicago Report showed new orders expanded by the most in four months, indicating demand is holding up in the face of possible automatic tax increases and government spending cuts next week. At the same time, the economy is getting a boost from residential real estate as households take advantage of record- low borrowing costs.

“Things are just plodding along in cruise control, waiting to see what happens” in Washington, said Sean Incremona, a senior economist at 4Cast Inc. in New York, who projected a 51.5 reading for the Chicago index. “There was underlying improvement in new orders, which can be constructive. The housing recovery is intact, and that’s encouraging.”

Stocks fell, sending the Standard & Poor’s 500 Index lower for a fifth day, amid concern talks between President Barack Obama and Republican lawmakers may not yield a budget deal by the year-end deadline. The S&P 500 dropped 1.1 percent to 1,402.43 at the close in New York.

Japanese Production

Elsewhere today, industrial output in Japan tumbled more than forecast to the lowest level since the aftermath of the record 2011 earthquake, bolstering the case for Prime Minister Shinzo Abe to unleash large-scale stimulus. The 1.7 percent drop in November from October exceeded all 27 forecasts in a Bloomberg survey, a government report showed in Tokyo.

In France, the economy expanded less than initially reported in the third quarter, signaling a recovery that may be too weak to help President Francois Hollande’s government reduce unemployment that’s at a 15-year high. Gross domestic product rose 0.1 percent, half the pace estimated on Nov. 15, statistics institute Insee in Paris said.

The figures show the weaker global economy remains a challenge for American manufacturers at the same time U.S. companies await clarity on taxes and government spending. While gross domestic product rose at a 3.1 percent annual rate from July through September, the fastest this year, corporate spending on equipment and software declined by the most since the second quarter of 2009.

‘Cautious’ Spending

“Our customers have continued to tell us that the economic uncertainty in the U.S. caused them to be very cautious in spending, hiring, and investment decision making,” William Gale, chief financial officer at Cintas Corp. (CTAS), said on a Dec. 20 earnings call with analysts. Cincinnati-based Cintas is a provider of uniforms, supplies and safety products.

“Unknowns concerning U.S. tax policies and the impact of changing health care regulations have created a pause in many of their business activities,” Gale said.

The median estimate in a Bloomberg survey called for the MNI Chicago gauge to rise to 51. Projections by the 49 economists in the Bloomberg survey ranged from 49 to 53.8.

The group’s gauge of new orders jumped to 54 in December from 45.3 a month earlier. Production eased, with the index falling to 53.8 this month from 54.7.

Employment Measure

Employment may be one area in which companies held back with the approaching so-called fiscal cliff. The MNI Chicago Report’s measure of employment decreased to 45.9, the lowest level since November 2009, from 55.2.

Economists monitor the Chicago index and other regional manufacturing reports for an early reading on the national outlook. The Chicago group includes manufacturers and service providers with operations in the U.S. and abroad, making the gauge a measure of overall growth.

The Institute for Supply Management’s factory index, set for release on Jan. 2, may have shown manufacturing remained stagnant in December, according to the median forecast of economists surveyed by Bloomberg.

The Federal Reserve Bank of Philadelphia’s index unexpectedly expanded to an eight-month high. The bank said on Dec. 20 that its general economic index climbed to 8.1 this month from minus 10.7 in November. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

In contrast, the Federal Reserve Bank of New York’s general economic index, released Dec. 17, showed manufacturing in the area covering New York, northern New Jersey and southern Connecticut contracted in December for a fifth straight month.

Housing Rebound

A rebound in the housing market is helping make up for weakness at the nation’s factories. Sales of new homes rose in November to the highest level in more than two years. Purchases climbed 4.4 percent to a 377,000 annual pace, the fastest since April 2010, Commerce Department figures showed yesterday.

“Housing is building some momentum,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “There is a growing perception that now is a good time to buy. Prices are starting to tick up, mortgage rates are still rock-bottom and the job market has shown some signs of improvement.”

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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