U.S. housing starts rise in July but miss forecasts

Carpenters work on new homes at a residential construction site in the west side of the Las Vegas Valley in Las Vegas, Nevada April 5, 2013.

Credit: Reuters/Steve Marcus

By Lucia Mutikani

WASHINGTON | Fri Aug 16, 2013 9:09am EDT

WASHINGTON (Reuters) - U.S. housing starts and permits for future home construction rose less than expected in July, suggesting that higher mortgage rates could be slowing the housing market's momentum.

The Commerce Department said on Friday that housing starts increased 5.9 percent to a seasonally adjusted annual rate of 896,000 units. June's starts were revised up to show a 846,000-unit pace instead of the previously reported 836,000 units.

Economists polled by Reuters had expected groundbreaking to rise to a 900,000-unit rate last month.

Permits to build homes rose 2.7 percent in July to a 943,000-unit pace. Economists had expected permits to rise to a 945,000-unit pace.

"It's not a surprise given the recent rise in mortgage rates. I think we are looking at a situation that some air is coming out of the housing recovery given the higher mortgage rates," said Michael Hanson, senior economist with Bank of America Merrill Lynch in New York.

"At this point, affordability has not changed that much on a historical basis. Housing affordability remains high, but fundamentals are less favorable for new buyers than they were a couple of months ago."

Mortgage rates have spiked in anticipation of the Federal Reserve tapering the $85 billion in bond purchases it is making monthly to keep interest rates low and stimulate the economy.

Economists expect the U.S. central bank to make an announcement on tapering at its policy meeting next month.

U.S. stocks were poised to open slightly higher after the data. The dollar pared gains against the yen and fell to a session low against the euro.

The residential construction figures last month could also be a reflection of supply constraints. Builders have been complaining about a shortage of labor and materials.

Still, residential construction remains on a firmer footing and should again contribute to economic growth this year.

A report on Thursday showed confidence among single-family homebuilders neared an eight-year high in August, with builders fairly upbeat about sales prospects over the next six months.

Though residential construction only accounts for about 3.1 percent of gross domestic product, housing has a wider reach in the economy. Analysts estimate that for every single-family home built, at least three jobs lasting for a year are created.

Economists expect average monthly housing starts for the whole of 2013 to top 1 million.

Last month, groundbreaking for single-family homes, the largest segment of the market, fell 2.2 percent to a 591,000-unit pace, the lowest level since November last year.

Starts for multi-family homes jumped 26 percent to a 305,000-unit rate, reversing the prior month's decline.

Permits for multi-family homes rose 12.6 percent to a 330,000-unit rate. Permits for single-family homes fell 1.9 percent to a 613,000-unit pace.

A separate report from the Labor Department showed nonfarm productivity increased at an annual rate of 0.9 percent in the second quarter.

Productivity dropped at a rate of 1.7 percent in the first quarter. Unit labor costs - a gauge of labor-related costs for any given unit of output - rose at a rate of 1.4 percent in the second quarter after dropping in the first quarter at a rate of 4.2 percent.

(Reporting by Lucia Mutikani, additional reporting by Richard Leong in New York; Editing by Paul Simao)

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U.S. housing starts rise in July but miss forecasts

Carpenters work on new homes at a residential construction site in the west side of the Las Vegas Valley in Las Vegas, Nevada April 5, 2013.

Credit: Reuters/Steve Marcus

By Lucia Mutikani

WASHINGTON | Fri Aug 16, 2013 9:09am EDT

WASHINGTON (Reuters) - U.S. housing starts and permits for future home construction rose less than expected in July, suggesting that higher mortgage rates could be slowing the housing market's momentum.

The Commerce Department said on Friday that housing starts increased 5.9 percent to a seasonally adjusted annual rate of 896,000 units. June's starts were revised up to show a 846,000-unit pace instead of the previously reported 836,000 units.

Economists polled by Reuters had expected groundbreaking to rise to a 900,000-unit rate last month.

Permits to build homes rose 2.7 percent in July to a 943,000-unit pace. Economists had expected permits to rise to a 945,000-unit pace.

"It's not a surprise given the recent rise in mortgage rates. I think we are looking at a situation that some air is coming out of the housing recovery given the higher mortgage rates," said Michael Hanson, senior economist with Bank of America Merrill Lynch in New York.

"At this point, affordability has not changed that much on a historical basis. Housing affordability remains high, but fundamentals are less favorable for new buyers than they were a couple of months ago."

Mortgage rates have spiked in anticipation of the Federal Reserve tapering the $85 billion in bond purchases it is making monthly to keep interest rates low and stimulate the economy.

Economists expect the U.S. central bank to make an announcement on tapering at its policy meeting next month.

U.S. stocks were poised to open slightly higher after the data. The dollar pared gains against the yen and fell to a session low against the euro.

The residential construction figures last month could also be a reflection of supply constraints. Builders have been complaining about a shortage of labor and materials.

Still, residential construction remains on a firmer footing and should again contribute to economic growth this year.

A report on Thursday showed confidence among single-family homebuilders neared an eight-year high in August, with builders fairly upbeat about sales prospects over the next six months.

Though residential construction only accounts for about 3.1 percent of gross domestic product, housing has a wider reach in the economy. Analysts estimate that for every single-family home built, at least three jobs lasting for a year are created.

Economists expect average monthly housing starts for the whole of 2013 to top 1 million.

Last month, groundbreaking for single-family homes, the largest segment of the market, fell 2.2 percent to a 591,000-unit pace, the lowest level since November last year.

Starts for multi-family homes jumped 26 percent to a 305,000-unit rate, reversing the prior month's decline.

Permits for multi-family homes rose 12.6 percent to a 330,000-unit rate. Permits for single-family homes fell 1.9 percent to a 613,000-unit pace.

A separate report from the Labor Department showed nonfarm productivity increased at an annual rate of 0.9 percent in the second quarter.

Productivity dropped at a rate of 1.7 percent in the first quarter. Unit labor costs - a gauge of labor-related costs for any given unit of output - rose at a rate of 1.4 percent in the second quarter after dropping in the first quarter at a rate of 4.2 percent.

(Reporting by Lucia Mutikani, additional reporting by Richard Leong in New York; Editing by Paul Simao)

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Wall Street starts key week with a dip

By Rodrigo Campos

NEW YORK (Reuters) - Stocks dipped on Monday as a week packed with data and central bank meetings got under way, with the S&P 500 within a few points of its record close set a week ago.

The main investor focus is Wednesday's statement from the U.S. Federal Reserve, which will be combed for clues on when the Fed will begin to pare its $85 billion in monthly asset purchases. The Fed is most likely to begin tapering its stimulus in September, according to a Reuters poll of economists conducted on July 22.

Until recently, investors have embraced average or weak data with the expectation that the Fed will continue to stimulate the economy and put a floor on stock prices. However, the prospect of a slightly less accommodative Fed in the near future has increased the market's need for a stronger economy.

Contracts to purchase previously owned U.S. homes fell in June, retreating from a more than six-year high touched in May, suggesting rising mortgage rates were starting to dampen home sales.

Data on the housing and industrial sectors are scheduled in the first half of the week, followed by gross domestic product for the second quarter on Wednesday and the key payrolls report on Friday.

"The focus right now is the Fed meeting and then the employment numbers at the end of the week," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

He said investors will try to decipher what the Fed knows about the jobs report a couple of days in advance, which could make Wednesday "even more volatile than it usually is" on Fed statement days.

The Dow Jones industrial average <.dji> fell 39.54 points or 0.25 percent, to 15,519.29, the S&P 500 <.spx> lost 4.67 points or 0.28 percent, to 1,686.98 and the Nasdaq Composite <.ixic> dropped 3.58 points or 0.1 percent, to 3,609.59.

On the earnings front, hotel, energy and financial services conglomerate Loews Corp posted a jump in second-quarter profit as revenue from its insurance arm, CNA Financial , increased nearly 13 percent.

"Earnings have been good so far, but they have come in low-quality," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh. "We haven't really seen margin expansion or a lot of revenue growth and that can keep a lid on the markets in the short term."

Halfway through earnings season, 67.6 percent of S&P 500 companies have beaten analysts' expectations - in line with the 67 percent average beat in the last four quarters. About 56 percent of the companies have beaten revenue expectations, more than the 48 percent of revenue beats in the past four earnings seasons but below the historical average.

Merger activity could give equities support as big deals show that large investors see value in the market.

On Monday, U.S. drugmaker Perrigo agreed to buy Irish drug company Elan for $8.6 billion. U.S.-traded Elan shares rose 5.2 percent to $15.71.

Shares in advertising groups jumped after Publicis and Omnicom said they would merge, as investors bet the deal would create an opening for rivals to poach defecting clients and potentially trigger more deals.

Omnicom shares gained 6.6 percent to $69.43 and smaller rival Interpublic Group gained 7.1 percent to $17.

"Deals are getting done because there's still cheap money," said Fort Pitt's Forrest. "It makes you wonder if the threat of higher interest rates is making these deals get done now."

Hudson's Bay Co , operator of department store chains Lord & Taylor in the United States and The Bay in Canada, said it would buy luxury retailer Saks Inc for $16 per share. Saks shares rose 3.7 percent to $15.88.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry and Nick Zieminski)

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India's Lanco Infra starts process to restructure $1.3 billion debt

By Neha Dasgupta

MUMBAI (Reuters) - India's Lanco Infratech Ltd has started a process to restructure debts totaling 75 billion rupees ($1.3 billion) after economic weakness impacted the performance of some of its businesses such as power and engineering and construction.

If the process is approved by its lenders, Lanco would be the second debt-laden company to go for a major loan restructuring within nine months, after lenders to wind turbine maker Suzlon Energy in November agreed to restructure about 110 billion rupees of its debt.

Lanco, which produces power, builds roads and constructs residential and commercial buildings, has asked banks to restructure the debt, a company statement said on Saturday.

The Business Standard newspaper earlier said Lanco had started discussion with its bankers to restructure debt worth 90 billion rupees.

The company, which acquired Australia's Griffin Coal Mining Co for about $760 million in 2011, said the debt restructuring would involve Lanco Infratech as a standalone unit and would not impact any of its units including the Australian business.

Banks bring cases to the so-called corporate debt restructuring process to negotiate relaxed repayment terms with struggling borrowers.

Many lenders have expressed worry about loans to the power, commercial real estate, construction, aviation, textile and metals sectors, which are among those hardest-hit by slowing growth and sluggish policymaking that has deterred investment.

"The current adverse macro-economic situation that has been prevailing in India since last 12 months has affected the performance of LITL's EPC business as well as the subsidiary business," the company said referring to the engineering, procurement and construction business.

"We expect this situation to remain for another 18 to 24 months time," it said, adding the restructuring process will help Lanco to complete its ongoing projects on time.

Lanco, which had total debt of 336 billion rupees as of the end of March, posted losses in the last two financial years, as the weak Indian economy, growing at its slowest in a decade, hit infrastructure investment.

Project bottlenecks, largely because of problems in acquiring land, and high funding costs, have also sapped investment in the infrastructure industry in Asia's third-largest economy.

(Writing by Sumeet Chatterjee; Editing by Robert Birsel and David Holmes)

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