US economy hit by housing slowdown

US economy hit by housing slowdown
By Krishna Guha and Eoin Callan in Washington and David Pilling in Tokyo
Copyright The Financial Times Limited 2006
Published: November 14 2006 14:46 | Last updated: November 15 2006 00:28



A slew of economic reports on Tuesday showed the US economy feeling the strain from the sharp slowdown in the housing sector, while offering hopes that inflation pressures could be easing.

The US data came as Japan announced a stronger-than-expected 2 per cent annualised growth rate for the third quarter, raising the prospect of a second interest rate rise there.

The latest US retail sales figures, from October, showed that consumer spending remained resilient in spite of the pressures from the housing market. Sales excluding petrol increased by 0.4 per cent over the month. Lower oil prices meant the value of total retail spending fell 0.2 per cent on the previous month.

But downward revisions to the previous two months’ retail sales suggested that consumer spending was weaker than thought.

Drew Matus, a senior economist at Lehman Brothers, said: “The retail picture points to a slightly lower growth profile than we anticipated.”

Reports from Home Depot, the world’s biggest DIY retailer, and D.R. Horton, the second-biggest US home builder, showed that pain continues in sectors most directly exposed to the housing slowdown.

Home Depot, which reported a 3 per cent fall in third-quarter net earnings, said the slowdown had come “faster and deeper” than expected. Bob Nardelli, chief executive, said the softening in the housing market had caused “significant” deterioration in home improvement sales, with conditions likely to worsen.

D.R. Horton, meanwhile, reported a rise in cancellations of new home sales for the third quarter in a row. “I’d say we are in the early stages of a downturn,” said Don Tomnitz, president and chief executive.

The US inflation picture improved moderately, as data showed core producer prices fell last month at their sharpest rate in 13 years. Peter Kretzmer, senior economist at Bank of America Securities, said the fall in core PPI – excluding food and energy – was “almost entirely the result of lower car and truck prices”.

Bond prices rallied on hopes that tomorrow’s consumer price report would show evidence that this reduction would feed into slightly lower consumer price inflation. US stocks also closed higher, with the Dow Jones Industrial Average reaching a record 12,218.01.

The much stronger than expected growth in Japan sent the Nikkei stock average up 1.67 per cent to 16,290, its biggest percentage gain in six weeks.

Additional reporting by Andrew Ward in Atlanta and Doug Cameron in Chicago