Mild consumer price increases, rising builder confidence aid US economic growth

Steady consumer prices, new homebuilder certainty give boost

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Confidence among U.S. homebuilders is at its highest level in six years as more people are buying and selling homes.   NAM Y. HUH/ASSOCIATED PRESS
NAM Y. HUH/ASSOCIATED PRESS
Confidence among U.S. homebuilders is at its highest level in six years as more people are buying and selling homes.

WASHINGTON — The outlook for the U.S. economy brightened a little Tuesday after reports that consumer prices stayed tame and homebuilder confidence rose to the highest level in six years.

A third report showed factory output grew only modestly in September, a reminder that the economy is still weak.

Low inflation could give consumers more incentive to spend at a time when their confidence is at a five-year high. That could boost growth and help lift American manufacturers out from their slump.

Tuesday’s data showed:

• The consumer price index rose a seasonally adjusted 0.6 percent in September, the Labor Department said, driven by higher gas prices. When excluding gas and food costs, prices rose just 0.1 percent. Overall prices have risen just 2 percent in the 12 months that ended in September, in line with the Federal Reserve’s inflation target.
• The National Association of Home Builders said its survey of builder sentiment rose to 41 this month, the highest level since June 2006. The index is still below 50, which indicates negative sentiment about the market, but it has steadily climbed over the past year from a reading of 17.

• The Federal Reserve said output at factories, mines and utilities rose 0.4 percent in September after a sharp decline in August. Factory output, the most important component of industrial production, edged up only 0.2 percent last month. The report noted that output fell in the July-September quarter – the first quarterly decline since the spring of 2009, when the country was still in recession.

Modest inflation leaves consumers with more to spend. Consumer spending drives roughly 70 percent of economic activity. Con­sumers also might be inclined to step up spending if home values keep rising.
The homebuilder survey
showed sales and builders’ outlook over the next six months remained unchanged from September’s improved levels. A measure of buyer traffic rose to its highest level since April 2006.

Americans are buying homes again, pushing up sales and prices after a six-year slump. The recovery has been modest and housing has a long way back to full health, but the steady increases suggest housing is no longer weighing on growth.

The same can’t be said for manufacturing, which has slumped since spring. Europe’s debt crisis and slower growth in China and other emerging markets have hurt demand for American exports. Many companies have held back on purchases of equipment. They are waiting to see whether Congress can reach a deal before the end of the year to avert sharp tax increases and spending cuts.

The September growth in factory output was an encouraging sign that manufacturing may be starting to rebound. A separate survey from the Institute for Supply Management also showed manufacturing activity expanded for the first time since May, buoyed by new orders and hiring.

A more confident consumer could help revitalize sluggish factory growth.

Consumer sentiment rose to a five-year high in October, according to a survey by the University of Michigan. And Americans stepping up their spending at retail businesses in September for the second straight month, buying more cars and iPhones.

Peter Newland, an economist at Barclays, said the increase in consumer spending should translate into more factory orders and stronger production in the coming months.

Still, most economists said the weak overseas growth should drag on U.S. manufacturing for some time.

“There is still little evidence to suggest that a sustained upturn in the manufacturing sector is just around the corner,” Erik Johnson, U.S. economist at IHS Global Insight, said in a note to clients.


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