- The Washington Times - Thursday, April 17, 2008


The U.S. housing erosion worsened in March, while manufacturing stabilized and a stagnant economy limited the ability of companies to pass higher food and energy costs on to consumers.

Work began on 947,000 homes at an annual rate, the fewest since March 1991, the Commerce Department reported yesterday. Industrial production gained 0.3 percent in the month, according to the Federal Reserve, and the Labor Department reported that consumer prices rose 0.3 percent, matching economists’ forecasts.

While foreclosures are pushing down property values and undermining construction, record exports have kept factories running to help compensate for the damage.

“The economy is slow, but it’s not plummeting,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York.

“Housing is accounting for most of the slowdown. The slow pace of activity is helping to keep the rate of inflation” from climbing further, he said.

Building permits, a gauge of future construction, fell to 927,000 from 984,000 the previous month.

Housing starts, which dropped 11.9 percent, were projected to decline 5.2 percent, according to the median forecast in a Bloomberg survey of 72 economists.

“Home construction is probably going to continue to fall right through this year,” said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, N.C.

“While we see a bottoming in sales in 2008, we really don’t see an improvement until later 2009, early 2010” in home building.

The increase in industrial production followed a revised 0.7 percent drop in February that was larger than previously reported, the Fed said.

Capacity utilization, which measures the proportion of plants in use, rose to 80.5 percent.

Cooler temperatures in March boosted utility output, while demand overseas might have helped U.S. factories offset declining domestic orders.

The increase in the U.S. Consumer Price Index followed no change the previous month, the Labor Department said. So-called core prices, which exclude food and energy, increased 0.2 percent, also after no change.

Higher prices, combined with falling home values and mounting job losses, are leading to cutbacks in consumer spending that could pull the economy into a deeper trough. Fed officials anticipate that the weakening economy will reduce the inflation rate.

“Economic conditions have weakened since the last report,” the central bank said yesterday in its regional Beige Book business survey. “Nine districts noted slowing in the pace of economic activity, while the remaining” three “described activity as mixed or steady.”

The Beige Book is part of a package of analyses and data that will be used by Fed policy makers as they decide on interest rates at their April 29-30 meeting.

Investors project the central bank will lower the benchmark rate by at least a quarter point.

“Their primary focus has to be on the downside risk to growth,” said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Mass. “There is very little ability for companies to pass on price increases.”

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