Wells Capital: Housing to Provide 'Some Support' for Recovery

Tuesday, 03 Jul 2012 09:30 AM

By Bob Willis

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A recovery in housing and construction will provide “some support’’ for the U.S. economy for the rest of the year, helping to counter a surprise contraction in manufacturing last month that raised alarm about a broader deterioration, says Gary Schlossberg, the chief economist at Wells Capital Management.

While the Institute for Supply Management’s factory index dropped to 49.7, its lowest reading since July 2009 and marking a contraction, construction spending in the prior month increased by a better-than-expected 0.9 percent to its strongest annual rate since December 2009, according to Commerce Department data.

“It’s interesting that the construction spending numbers do point to the fact that this recovery, such that it is, is being led increasingly by housing, which could provide some support to the economy later in the year,” Schlossberg said.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

The housing sector at the heart of the 2007-2009 recession has become one of the relative bright spots in a U.S. recovery that is increasingly threatened by the European debt crisis and concerns about a so-called “fiscal cliff’’ set to batter the economy with higher taxes and lower spending at the beginning of next year.

Sales of new houses rose 7.6 percent in May, reaching the highest level since April 2010, while an index of pending home resales rose 5.9 percent, matching a two-year high, data showed last month, according to Bloomberg News. Pending sales were up 15.3 percent from a year earlier.

Schlossberg said falling gasoline prices and monthly gains in housing values, along with an expected uptick in consumer spending and more appetite for risky investments following Europe’s bailout accord should help boost growth.

Michael Jones, chief investment officer of U.S.-based Riverfront Investment Group, is another economist who expects a gradual pickup in the second half. He told CNBC the U.S. economy should improve in a "three steps forward, two steps back" manner.

He said the second quarter was the “maximum period of uncertainty,’’ with uncertainty over Europe, “uncomfortably high gasoline prices’’ and concern over “fiscal policy,’’ according to CNBC.

The economy slowed to a 1.9 percent pace of growth in the first quarter following 3 percent growth in the fourth quarter.

Fed officials said June 20 that they expect “economic growth to remain moderate over coming quarters and then to pick up very gradually,” Bloomberg reported.

All eyes are on Friday’s payroll report from the Labor Department. Economists surveyed by Bloomberg forecast payroll growth of 90,000 in June, following a weak gain of 69,000 in May. That uptick in jobs won’t be enough to bring down unemployment from its 8.2 percent level, analysts forecast.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.



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