Bloomberg News

Weather Cools U.S. Housing as Japan GDP Picks Up: Global Economy

February 15, 2014

U.S. Home Construction

A carpenter works on the roof while building new homes at the Toll Brothers Inc. Baker Ranch community development in Lake Forest, California, on Feb. 11, 2014. Photographer: Patrick T. Fallon/Bloomberg

Housing starts probably fell in January as colder-than-normal temperatures and snowstorms slowed work in parts of the U.S., data this week are forecast to show. The projected decline indicates the residential real estate market succumbed to the same inclement conditions that have slowed retail sales, manufacturing and job growth. Another report may show higher borrowing costs at the start of the year, along with the weather, slowed sales of previously owned homes.

Elsewhere, Japan’s economy probably accelerated in the fourth quarter, while unemployment in the U.K. held just above the level central bankers have identified as the point for considering interest-rate increases.

WINTER CASUALTY

-- Winter put a chill on U.S. homebuilding in January. Last month was the coldest January since 1994 in the contiguous U.S., based on gas-weighted heating-degree days, a measure of energy demand, according to Commodity Weather Group LLC in Bethesda, Maryland. The U.S. Northeast is also on track for the coldest winter since 1982, measured from December to February, the group said. Housing starts probably declined for a second month, according to the median forecast in a Bloomberg survey before Commerce Department data on Feb. 19. The projected pace of building permits probably exceeded the month’s housing starts, a sign homebuilding will rebound.

-- “Housing starts were probably hampered by the same lousy weather that has already made itself visible in the retail and employment reports,” Peter D’Antonio, an economist at Citigroup Inc., said in a note. “The unusual storms will add confusion to the housing report. Building permits, which were less impacted by weather, may offer a clearer picture of the fundamental situation.”

-- While weather helped slow ground-breaking on new projects, higher mortgage rates entering the new year limited purchases of previously owned properties, a Feb. 21 report from the National Association of Realtors is forecast to show. Existing-home sales, which reflect buying decisions months before a contract closes, may have been the weakest since mid-2012.

-- The decrease partly “reflects the rise in mortgage rates during the summer and extremely low inventory,” economists at Bank of America said in a research note. “We also see signs that investor demand for existing properties, particularly distressed homes, has dwindled.”

U.K. UNEMPLOYMENT

-- Unemployment is falling faster than the Bank of England has forecast, prompting Governor Mark Carney to update his forward-guidance policy this month to take the changed economic backdrop into account. Data on Feb. 19 will probably show the jobless rate held at 7.1 percent in the fourth quarter, according to the median forecast of economists, just above the 7 percent threshold that BOE policy makers previously identifed as the point at which to consider raising borrowing costs.

-- In their revamped guidance, members of the BOE’s Monetary Policy Committee will look at labor-market developments other than just unemployment before deciding whether to increase their key rate from a record-low 0.5 percent. Insight into the debate that led to that decision may be revealed in the minutes of policy makers’ Feb. 5-6 meeting, to be published the same day as the labor-market report.

-- “The Bank of England’s latest phase of forward guidance represented an evolution of its original unemployment-based threshold,” said Philip Shaw, an economist at Investec Securities in London. “However, despite the 7 percent unemployment threshold being superseded, there is still a firm focus on the labor market, opening the labor-market data up to more scrutiny than ever.”

JAPANESE ECONOMY

-- Japan’s economy probably accelerated to a 2.8 percent annualized rate in the fourth quarter from a 1.1 percent pace the prior three months, a Bloomberg survey of economists showed ahead of data due Feb. 17. The final quarter of 2013 may have benefited from stronger consumption and less of a drag from trade. The yen dropped 6.7 percent against the dollar in the fourth quarter, the worst performer among the 16 major currencies tracked by Bloomberg.

-- “The economy will be underpinned, though perhaps not driven strongly, by capex in 2014,” Barclays economists led by Kyohei Morita said in a research note. “Improved corporate earnings also bode well for” capital investment. “Unless export volumes start to increase, however, much of this investment may be limited to replacement demand and frontloading tied to tax incentives.”

SINGAPORE BUDGET

-- Singapore Finance Minister Tharman Shanmugaratnam on Feb. 21 will deliver the budget statement for 2014 and release details of the so-called Pioneer Generation Package designed to reduce medical expenses for the elderly. Prime Minister Lee Hsien Loong has in recent years prodded companies to produce more with fewer workers as the island confronts an aging population and voter discontent with foreigners in the country.

-- “With the recovery still fragile, elections due by 2015, and small- and medium-sized enterprises strained by earlier tightening, budget 2014’s restructuring thrust may focus less on sticks and more on carrots,” said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. “We see a low likelihood of further hikes in the foreign-worker levies or quota cuts. But given a more favorable trade-off between economic costs and political bang for the buck,'' foreign workers ``may bear the brunt of further tightening, as has been the case since 2012.”

SLOWDOWN IN MEXICO

-- A report from Mexico’s statistics agency on Feb. 21 may show gross domestic product expanded 1.0 percent in the fourth quarter from the same period in 2012, capping the worst year of growth since the recession in 2009 as manufacturing and public spending slumped.

-- “There was very modest growth,” said Rafael Camarena, chief Mexico economist at Grupo Financiero Santander Mexico SAB. “Consumers were very cautious and throughout the year there was very little strength in public spending. There are indications in the first months of this year that growth continues to be very moderate.”

-- The expansion was “slow, but with an upside in construction,” said Alexis Milo, chief Mexico economist at Deutsche Bank AG. “It’s a matter of timing of external demand. While manufacturing in the U.S. is accelerating, there was a pause in orders. That’s why the production of autos fell. But this is only temporary.”

To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net

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


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