WASHINGTON: US consumer confidence ebbed in August and residential construction rose less than expected last month, potentially dimming hopes of an acceleration in economic activity in the second half of the year.
The data on Friday suggested that a recent spike in interest rates, in anticipation of the Federal Reserve tapering its massive bond purchases as early as next month, was starting to have an impact on households.
"People have been shocked by how much mortgage rates have risen in the past couple of months. The chatter about the Federal Reserve is also a big deal," said Christopher Low, chief economist at FTN Financial in New York.
The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment slipped to 80.0 from July's six-year high of 85.1. August's reading was the lowest in four months.
The survey's barometer of current economic conditions fell to 91.0 in August from 98.6 the prior month. The gauge of consumer expectations slipped to 72.9 from 76.5 in July.
In a separate report, the Commerce Department said housing starts rose 5.9 percent to a seasonally adjusted annual rate of 896,000 units. That was below economists' expectations for a 900,000-unit rate.
Permits to build homes rose 2.7 percent in July to a 943,000-unit pace. Economists had expected them to rise to a 945,000-unit pace.
"It's not a surprise given the recent rise in mortgage rates. I think we are looking at a situation where some air is coming out of the housing recovery given the higher mortgage rates," said Michael Hanson, senior economist with Bank of America Merrill Lynch in New York.
"At this point, affordability has not changed that much on a historical basis. Housing affordability remains high, but fundamentals are less favorable for new buyers than they were a couple of months ago."
Long-term interest rates have risen by more than a full percentage point over the last three months on the view that the Fed will soon start trimming the $85 billion in monthly bond purchases that it has been making to keep borrowing costs low and stimulate the economy.
That in turn has prompted a rise in mortgage rates, which threatens to sap some of the strength from a housing recovery that has been pushing prices higher for more than a year
Economists expect the US central bank to make an announcement on tapering at its policy meeting next month.
Stocks on Wall Street were trading higher after suffering their largest one-day drop in nearly two months on Thursday. The dollar fell against the yen, while the yield on the benchmark 10-year Treasury note held at two-year highs.
Data this week for industrial production, residential construction and employment have missed market forecasts, which could dampen expectations of a significant pick-up in growth in the second half of the year.
The economy grew at a rate of only 1.4 percent in the first half of 2013, held back by tighter fiscal policy.
Aside from higher mortgage rates, the residential construction figures last month could also be a reflection of supply constraints. Builders have been complaining about a shortage of labor and materials.
Still, home building remains on a firmer footing and should again contribute to economic growth this year.
A report on Thursday showed confidence among single-family homebuilders neared an eight-year high in August, with builders fairly upbeat about sales prospects over the next six months.
Though residential construction only accounts for about 3.1 percent of gross domestic product, housing has a wider reach in the economy. Analysts estimate that for every single-family home built, at least three jobs lasting for a year are created.
Economists expect average monthly housing starts for the whole of 2013 to top 1 million.
Last month, groundbreaking for single-family homes, the largest segment of the market, fell 2.2 percent to a 591,000-unit pace, the lowest level since November last year.
Starts for multi-family homes jumped 26 percent to a 305,000-unit rate, reversing the prior month's decline.
Permits for multi-family homes rose 12.6 percent to a 330,000-unit rate. Permits for single-family homes fell 1.9 percent to a 613,000-unit pace.
US consumer confidence dips; housing starts up 5.9%
