Economy Watch: Home Builders Perking Up

By Dees Stribling, Contributing Editor

Better times ahead for developing single-family homes? Those in the industry seem to think so, since home builder confidence increased for the fifth consecutive month in February, rising from 25 to 29 on the NAHB/Wells Fargo Housing Market Index, which was released on Wednesday. It’s the highest level for the index in more than four years.

Each of the index’s three components also experienced some get-up-and-go for a fifth consecutive month. The component measuring traffic of prospective buyers rose from 21 to 22, while the sales expectations component (looking ahead to the next six months) increased from 29 to 34. The component gauging current sales rose from 25 to 30.

Since 50-plus is optimism territory, the index is still fairly dismal—as the organization’s own dismal scientist points out. “This is the longest period of sustained improvement we have seen since 2007, which is encouraging,” said NAHB chief economist David Crowe in a press statement. “[But] several factors continue to constrain the market. Foreclosures are still competing with new home sales, and many builders are seeing appraisals come in at less than the cost of construction. Additionally, prospective home buyers are finding it difficult to qualify for a mortgage.”

Manufacturing still on a roll

The Federal Reserve reported on Wednesday that U.S. manufacturing was up 0.7 percent month-over-month in January, with the index for motor vehicles and parts spiking 6.8 percent and growth for other manufacturing industries increased 0.3 percent. At 95.9 percent of its 2007 average, total industrial production in January 2012 was 3.4 percent above its level of a year earlier.

Moreover, the Fed now reports that total U.S. industrial production advanced 1 percent in December, compared with its initial estimate of an increase of 0.4 percent. The large upward revision reflected higher output in a wide variety of industries. Whatever else is going on in the economy, a lot of Americans are making things.

The Empire State manufacturing survey, also released on Wednesday, reflects that cheery circumstance as well. The February survey found that manufacturing activity in New York state expanded for a third consecutive month. Not only that, manufacturers are anticipating a reasonably good 2012. Substantially more respondents indicated that they planned increases (46 percent) than reductions (25 percent) in overall capital spending this year when compared to 2011.

No hints of policy change from FOMC

The Federal Open Market Committee released its notes from its Jan. 25 meeting on Wednesday, generally coming to the vanilla conclusion that the U.S. economy is better, but not click-your-heels terrific. Improvements continue in employment, consumer spending and inflation, though the committee specifically reserved the word “depressed” to refer to the housing market. Housing didn’t even rate a moderately improving, no matter what the homebuilders think.

The committee reiterated the Fed’s determination to keep interest rates at rock bottom till 2014 at least, and to “regularly review” its securities holdings, but it has always said that in recent months. As for QE3, the committee is divided on the matter, but if the economy continues to get stronger, the concept might be moot anyway.

Wall Street didn’t care for the way things were going on Wednesday, perhaps because it’s official now: Italy is in recession. Or maybe because of the never-ending Greek debt saga. In any case, the Dow Jones Industrial Average lost 97.33 points, or 0.76 percent. The S&P 500 and the Nasdaq were down 0.54 percent and 0.55 percent, respectively.