June 16 (Bloomberg) -- A gain in housing starts in May probably failed to make up for ground lost the prior month as U.S. homebuilders remained reluctant to ramp up projects, economists said before a report today.
Work began on 545,000 houses at an annual pace, up 4.2 percent from the prior month, according to the median estimate of 78 economists surveyed by Bloomberg News. Construction plunged 11 percent in April as flooding and tornadoes shut down building sites.
Falling real estate values and the threat that foreclosures will push prices even lower mean the construction industry will continue to lag behind other parts of the economy. Joblessness exceeding 9 percent indicates that a rebound in housing will take years to develop.
“This is just a major dampener on the growth outlook and it’s going to be with us for a while,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. “It’s very difficult for the economy to sustain growth above 3 percent without a rebound in the residential construction market.”
The Commerce Department’s report is due at 8:30 a.m. in Washington. Survey estimates ranged from 493,000 to 585,000.
Building permits decreased to a 557,000 annual pace from a 563,000 rate in April, according to the survey median.
Confidence among homebuilders plunged in June, led by a decline in the outlook for sales. The National Association of Home Builders/Wells Fargo sentiment index dropped to 13 this month from 16 in May, data from the Washington-based group showed yesterday. A measure of sales expectations for the next six months matched the lowest level on record.
Firms like Hovnanian Enterprises Inc. are still struggling to turn a profit in the housing market. The largest homebuilder in New Jersey reported a net loss for the three months ended April 30 that was wider than analysts estimated.
Homebuilders have underperformed the broader stock market. The Standard & Poor’s Supercomposite Homebuilder Index has fallen 6.7 percent so far this year, compared with a 0.6 percent increase for the S&P 500 Index.
Sales of previously owned homes, which make up more than 90 percent of the market, fell 4 percent to a 4.85 million annual pace in May, economists surveyed by Bloomberg forecast the National Association of Realtors will report on June 21. Existing-home sales have been gaining market share from new houses due to growing demand for lower-priced distressed dwellings.
Another report today is expected to show the U.S. labor market is struggling to improve. The number of Americans applying for unemployment insurance last week probably fell to 420,000 from 427,000 the prior week, according to economists surveyed ahead of Labor Department figures due at 8:30 a.m. in Washington.
Manufacturing, the industry that helped the U.S. emerge from recession in June 2009, is showing signs of cooling as factories await supplies from Japan following the earthquake and tsunami. The Federal Reserve Bank of Philadelphia’s general economic index in June climbed to 7 from 3.9 the previous month, according to the median projection in a Bloomberg survey. The gauge is down from a 43.4 reading in March.
Figures greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The data are due at 10 a.m. New York time.
--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Carlos Torres
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