US Homebuilder Sentiment Falls; New York State factory activity plummets

Carpenters work on new townhouses that are still under construction as building material supplies are in high demand in Tampa, Florida, U.S., May 5, 2021. REUTERS/Octavio Jones

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  • Homebuilder Sentiment Falls in January
  • New York State factory activity plummets

WASHINGTON, Jan 18 (Reuters) – Confidence among U.S. single-family homebuilders fell in January after four straight monthly increases, and builders called for a new softwood lumber deal with Canada to ease shortages and driving prices down, according to a survey released Tuesday.

Other data showed factory activity in New York state slumped this month amid surging COVID-19 infections, but manufacturers remained optimistic about business conditions in course of the next six months. Reports supported the view that the economy started the year on a soft note due to high inflation, shortages and raging coronavirus cases driven by the Omicron variant.

“It’s a reminder that COVID is still dominating the recovery,” said Oren Klachkin, chief US economist at Oxford Economics in New York. “U.S. supply chain dynamics did not improve at the end of 2021, and early data suggests it only worsened in 2022.”

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The National Association of Home Builders/Wells Fargo Housing Market Index fell one point to 83 this month. A reading above 50 indicates that more builders rate the conditions as good than bad.

“NAHB analysis indicates that the overall cost of residential building materials has increased nearly 19% since December 2021,” NAHB President Chuck Fowke said in a statement. “Policymakers need to take action to fix supply chains. Securing a new softwood lumber agreement with Canada and lowering tariffs is a great start.

According to the NAHB, higher material costs and shortages were adding weeks to typical construction times for single-family homes. The economy is struggling with high inflation, mainly due to the pandemic, which has rumbled supply chains.

Last November, the United States nearly doubled duties on imported Canadian softwood lumber to 17.9% after a review of its anti-dumping and countervailing orders.

The Trump administration initially imposed 20% tariffs on Canadian softwood lumber in 2018 after talks on a new quota agreement broke down, but reduced the level in December 2020 to 9%. President Joe Biden’s administration had held on to those duties until November’s Commerce Department review.

The NAHB survey was conducted during the first two weeks of January and does not fully reflect the recent rise in mortgage interest rates. The 30-year fixed-rate mortgage averaged 3.45% in the week ending Jan. 13, down from 3.22% the previous week, according to data from mortgage finance agency Freddie Mac.

More expensive building materials and higher mortgage rates could make housing less affordable, especially for low-income groups and first-time home buyers.

The dollar was trading higher against a basket of currencies. US Treasury yields rose, weighing on Wall Street stocks.

NAHB

THE OMICRON EFFECT

The NAHB survey’s measure of current selling conditions held steady at 90, but its gauge of sales expectations over the next six months fell two points to 83. The component measuring traffic from potential buyers also fell. two points to 69.

A separate report from the New York Federal Reserve showed on Tuesday that its “Empire State” index of current business conditions plunged 32.6 points to -0.7 this month. This is the first negative reading since June 2020.

A reading below zero signals a contraction in New York’s manufacturing sector. New York has been hit by a vicious winter surge of coronavirus infections that has severely disrupted business activity. The survey offered a first reading of Omicron’s impact on the economy. There are signs that infections have peaked in some areas, including New York.

state of the empire

“It is possible that the recent weakening is related to the virus outbreak that has spread over the past few weeks and/or ongoing supply issues and price pressures,” said Daniel Silver, economist at JPMorgan in New York. “We’ll see if other January manufacturing surveys released this week and beyond reinforce the pessimistic message of the Empire State survey.”

Manufacturers reported a sharp drop in orders. The survey’s new orders index fell 32 points to -5.0. There were also decreases in shipments and unfilled orders, but not of the same magnitude as the drop in new orders. Factories continued to wait long periods for supplies to be delivered, which kept prices high.

But manufacturers were generally optimistic about the outlook for the next six months. The future trade conditions index fell 1.3 points to 35.1 this month.

The capital expenditure index climbed two points to 39.7, a multi-year high, suggesting companies are planning big increases in capital spending in the months ahead.

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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