Housing Hot, But Factories Falter

Federal Reserve Chairman Alan Greenspan, testifies before the House Education and the Workforce Committee on Capitol Hill Thursday, March 11, 2004. (AP Photo/Dennis Cook)
AP
Housing construction rebounded with gusto in March, rising by 6.4 percent, the largest increase in 10 months. But production at America's industries fell.

The Commerce Department reported Friday that the number of residential projects that builders started last month clocked in at a seasonally adjusted annual rate of 2 million units, representing a 6.4 percent rise from the previous month.

In another report, production at the nation's factories, mines and utilities dipped by 0.2 percent in March, following two months of strong increases, the Federal Reserve said. Industrial production rose by 0.7 percent in January and 0.8 percent in February.

Manufacturing output, which had registered a 1.1 percent surge in February, was flat last month.

The overall industrial production number in March was also held down by a 2.3 percent plunge in output at gas and electric utilities, the sharpest decline in a year. That reflected a decrease in demand because of unseasonably warm weather, the Fed said. In February, output at utilities declined by 0.8 percent.

Output at mines, meanwhile, slipped by 0.3 percent in March, following a 0.1 percent rise in the previous month.

While the industrial sector, hardest hit by the 2001 recession, has experienced an uneven path to recovery, the nation's housing markets have been thriving in an environment of relatively low mortgage rates.

The advance in housing construction, the largest since last May, came after two straight months in which housing construction dropped. Those previous declines were blamed on bad weather in some parts of the country, which forced construction delays.

March's performance was stronger than analysts were expecting. They were forecasting housing starts to rise to a rate of around 1.9 million units.

Recent economic reports showing an increase in job creation, retail sales and consumer prices have all fueled speculation in financial markets that the Federal Reserve will raise short-term interest rates in coming months.

That has caused long-term mortgage rates to climb. Rates on 30-year mortgages rose to 5.89 percent this week, the highest since early December. Still, economists believe that home sales — which hit all-time highs last year — will remain healthy this year.

While economists have differing opinions on when the Fed may start to boost short-term rates, they do agree that it won't be at the central bank's next meeting May 4. Economists widely expect Fed policy-makers to hold short-term rates at a 45-year low of 1 percent at that time.

Signs of inflation are behind the expectations that the Fed will eventually raise rates. But the approach of the presidential election may make Fed governors reluctant to make any major policy moves.

By region, new residential projects under way in March rose by 10.6 percent in the Midwest to a seasonally adjusted annual rate of 386,000. In the South, housing construction increased by 8.5 percent to a rate of 945,000 units, and in the West, housing starts rose by 3.7 percent to a pace of 502,000. But in the Northeast, new housing projects dipped by 4.9 percent to a rate of 174,000.

Permits filed to build new housing projects — a good measure of current demand — rose by 1.9 percent in March from the previous month to a rate of 1.9 million units. The rise in permits came after two straight months of declines.

Meanwhile Friday, Federal Reserve Chairman Alan Greenspan said companies need to work harder than ever to restore trust in the operation of the nation's financial markets afte recent scandals.

Greenspan predicted that such trust can be restored, but he warned of serious consequences if it is not.

"Recent allegations on Wall Street of breaches of trust or even legality, if true, could begin to undermine the very basis on which the world's greatest financial markets thrive," he said in remarks to a financial conference sponsored by the Federal Reserve Bank of Atlanta.