Economy slowing down?

The Obama administration got caught flat-footed a couple of weeks ago by an anemic job-creation report for March from the Department of Labor, and it looks as if that was no fluke.  Two more economic indicators over the last 24 hours show at least a slowdown in the US economy — and potentially bad news for Barack Obama’s prospects in the next election.  Manufacturing output dropped for the first time in four months, as Reuters reported last night:

Manufacturing output slipped for the first time in four months, dropping 0.2 percent, the U.S. Federal Reserve said on Tuesday.

The decline dragged on overall industrial production which was unchanged and fell short of analysts’ expectations.

“It looks pretty bad on the face of it,” said Tom Porcelli, an economist at RBC Capital Markets in New York.

Surging exports and efforts by companies to restock their shelves have made economic growth look more solid in recent weeks.

The factory data did little to change that view, but economists said it suggested the recovery lost a little steam at the close of the first quarter, in part due to headwinds from Europe’s debt crisis, which is weighing on global growth.

On top of that, residential housing starts plummeted 5.8% in March, although permits jumped by over 7%.  Most of the decline came in multi-unit housing.  Permits, however, sharply declined for private single-unit housing:

Privately-owned housing starts in March were at a seasonally adjusted annual rate of 654,000. This is 5.8 percent (±15.6%)* below the revised February estimate of 694,000, but is 10.3 percent (±14.6%)* above the March 2011 rate of 593,000.

Single-family housing starts in March were at a rate of 462,000; this is 0.2 percent (±12.6%)* below the revised February figure of 463,000. The March rate for units in buildings with five units or more was 178,000. …

Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 747,000. This is 4.5 percent (±1.1%) above the revised February rate of 715,000 and is 30.1 percent (±1.6%) above the March 2011 estimate of 574,000.

Single-family authorizations in March were at a rate of 462,000; this is 3.5 percent (±1.1%) below the revised February figure of 479,000. Authorizations of units in buildings with five units or more were at a rate of 262,000 in March.

The best that analysts could offer as positive spin was that the housing market is still trying to find a bottom, after predicting a slight increase to 705,000:

Some analysts speculated that a mild winter in the U.S. led homebuilders to start new projects ahead of schedule, and that March’s decline amounted to a payback.

“Weather was so mild earlier in the year we might have pulled some of the starts forward,” said Mark Foster, who helps manage $500 million at Kirr Marbach & Co. in Columbus, Ind. “But the trend looks good, it feels like the housing market is trying to form a bottom.”

However, the demand for purchases appears to have tailed off again.  The Mortgage Bankers Association reports that purchase applications for mortgages dropped by over 11% last week, even though long-term rates declined.  That did spur a spike in applications, but for refinancing rather than new buyers:

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 6.9 percent in the week ended April 13.

The MBA’s seasonally adjusted index of refinancing applications surged 13.5 percent, but the gauge of loan requests for home purchases dropped 11.2 percent. It was the second week in a row purchases have declined. …

The refinance share of total mortgage activity climbed to 75.2 percent of applications from 70.5 percent the week before.

There isn’t too much mystery about this.  Manufacturing slowdowns mean fewer new hires; fewer new hires means lower demand for home purchases, which leads to fewer housing starts, and all of that gets reflected in the mortgage application statistics.  On top of that, the recent settlement on foreclosures will put more competitive pressure on new housing, as some potential buyers will aim for bargains in foreclosures and short sales rather than pay a premium for new housing.

Obama really needed to show some significant growth this spring.  So far, it looks like the stagnation of the past two springs may be returning a third time.

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