A steep decline in new-home construction last month to a 17-year low suggests that the hoped-for stabilization of the housing market -- key to boosting the U.S. economy -- is still a ways off.Construction of new homes dropped by 6.2% in August to a seasonally adjusted 895,000 annual rate, the Commerce Department said. Construction of multifamily units fell sharply. Single-family home construction fell by a smaller amount but remained at very low levels.
Newly issued building permits also declined in August, suggesting that construction could continue to drop in coming months.
Economists have been watching for signs that home construction, which has been a significant drag on U.S. economic growth, is beginning to stabilize. But the latest data, mixed with the results of construction bonds and combined with gloomy sentiment among home builders and worsening problems in credit markets, suggest that conditions in the housing industry could worsen further.
"A credit crunch is materializing with significant force that completely invalidates the notion that the housing slump is 'bottoming,'" said Roger Kubarych, chief U.S. economist at UniCredit, a markets and investment bank.
The government also reported that the U.S. deficit on trade, income and other payments widened this spring as the price of imported oil surged.
The current-account deficit increased to $183.1 billion in the second quarter, compared with a revised $175.6 billion in the first quarter. Nearly half of the increase came from a rise in the cost of petroleum and related products. With oil prices falling in recent months, the deficit is expected to shrink.
Strong export growth in the second quarter is also expected to slow. Exports of goods rose by $19.5 billion to $337.3 billion in the April-June quarter, helped by a weak dollar and strong foreign demand for U.S. goods. The trade balance provided a huge boost to U.S. growth in the second quarter, so slowing exports could hurt growth in the months ahead.
The trade report also showed that foreigners bought $17.7 billion in U.S. corporate and agency bonds in the second quarter, compared with $28.7 billion in the first quarter.
By: Kelly Evans and Jeff Bater
Wall Street Journal; September 18, 2008
