U.S. Homebuilder Sentiment, New York State Factory Activity Declines

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(Reuters) – U.S. single-family homebuilder confidence and factory activity in New York state fell in August to their lowest levels since the start of the COVID pandemic, another sign as the economy softens as the Federal Reserve raises interest rates.

The National Association of Home Builders/Wells Fargo housing market index fell 6 points to 49 this month, the eighth consecutive monthly decline and the lowest reading outside the pandemic era since 2014, according to a survey published on Monday. A reading below 50 indicates that more builders rate the conditions as bad than good.

According to the NAHB, rising construction costs and high mortgage rates weighed on confidence. The Fed’s increasingly aggressive fight to stifle high inflation by raising borrowing costs has already started to affect the housing sector, which is highly interest rate sensitive.

The current component of single family home sales fell from 64 to 57 and the single family sales expectation gauge for the next six months fell to 47 from 49, while the potential buyer traffic index rose from 37 to 32 .

Chart: US homebuilder sentiment plunges https://graphics.Reuters.com/USA-ECONOMY/HOUSING/gkvlgybqapb/chart.png

Meanwhile, a separate survey by the New York Fed showed that the Empire State’s index of current trading conditions fell 42.4 points to -31.3 this month. A reading below zero signals a contraction in New York’s manufacturing sector.

Manufacturers reported a sharp drop in orders and shipments. The survey’s new orders index fell 36 points to -29.6 while the shipments index fell 49.4 points to -24.1.

The decline in activity in the Aug. 2-9 survey is also seen as reflecting the impact of Fed actions, which caused financial market conditions to tighten.

Chart: Empire State factory activity plunges https://graphics.Reuters.com/USA-ECONOMY/JOLTS/zdpxozaeqvx/chart.png

The U.S. central bank has raised its overnight rate by 225 basis points since March and is expected to raise its key rate by another 50 or 75 basis points at its next meeting on September 20-21.

The Fed aims to dampen demand across the economy enough to calm inflation, which is at its highest level in four decades, without triggering a sharp rise in unemployment. The effort, however, fueled fears of a recession.

Fed policymakers have pointed out that the central bank will need global supply chains to unravel somewhat in order to help bring inflation down. On that front, parts of the New York State manufacturing survey were encouraging.

The price paid index hit its lowest level since February 2021, unfilled orders also fell and the delivery time index fell for the first time since May 2020.

“This suggests that supply chain issues have eased significantly, although this likely reflects at least some of the weakening in demand,” said Daniel Silver, an economist at JP Morgan.

(Reporting by Lindsay Dunsmuir; Editing by Paul Simao)

Copyright 2022 Thomson Reuters.

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