Factory production and housing starts probably rose in July as part of the US economy's uneven transition to a slower pace of growth in the second half of the year, economists said reports this week will show.
Output increased 0.5 per cent, led by a rebound in auto making as fewer plants closed for mid-year retooling, according to the median estimate of 57 economists surveyed by Bloomberg News before Federal Reserve figures Aug. 17. Another report may show work began on more houses for the first time since April.
Manufacturing, which spearheaded the recovery from the worst recession since the 1930s, will probably cool in coming months as a slowdown in consumer spending leads to fewer orders. A recovery that Fed policy makers said was "more modest" than they projected prompted central bankers last week to take additional steps to revive the economy.
"Growth is beginning to fade," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. "The Fed is definitely justified in expressing concern."
Automakers kept factories open last month after pulling back during the economic slump. Chrysler Group LLC slashed production by half in 2009, and General Motors Co. cut output by 44 per cent as the companies went through bankruptcy and extended summer plant shutdowns. Ford Motor Co., the only major U.S. automaker to avoid bankruptcy, lowered output 16 per cent, according to J.D. Power & Associates.
This year, GM kept most of its US plants open during the traditional shutdowns, a move that economists said propelled auto output last month.
Ford's Plans
At the same time, automakers aren't going to charge ahead in coming months. Dearborn, Michigan-based Ford has no plans to increase production of any of its current models because demand is fragile in the weak economic recovery, George Pipas, the automaker's sales analyst, said in an interview earlier this month.
Manufacturers may face smaller gains in coming months as companies see less need for inventory rebuilding and the scarcity of jobs restrains demand. Retail sales rose less than forecast in July and consumer confidence in August held near an eight-month low, reports showed last week.
Fed policy makers, who on Aug. 10 renewed a pledge to hold interest rates near zero, said they will maintain their holdings of securities to prevent money from being drained out of the financial system, their first attempt to bolster the economy in more than a year.
'More Modest'
"The pace of recovery in output and employment has slowed in recent months," central bank officials said in a statement following their meeting. The "economic recovery is likely to be more modest in the near term than had been anticipated."
Regional factory reports are projected to show manufacturing held up this month. The Fed Bank of New York's figures tomorrow will show factories accelerated after growing at the slowest pace of the year in July. Data from the Philadelphia Fed, due Aug. 19, may also show a pickup in August from the slowest advance in almost a year, according to economists surveyed.
Shares of manufacturers are outperforming the broader market. The Standard & Poor's Supercomposite Machinery Index, which includes Deere & Co. and Caterpillar Inc., has climbed 9.5 per cent since the end of June, compared with a 4.7 per cent gain in the S&P 500 Index.
Homebuyer Credit
The end of a government tax incentive, for which buyers had to sign purchase agreements by April 30 in order to qualify, has caused swings in housing data. It will take several months for the effect to work its way out of the numbers, economists said.
The Commerce Department may report on Aug. 17 that work began on houses at a 560,000 annual rate last month, up from a 549,000 pace in June that was the lowest in eight months, according to the Bloomberg survey median. Building permits, a gauge of future construction, fell 0.7 per cent to a 579,000 annual pace, economists predicted.
Builders remain pessimistic. The National Association of Home Builders/Wells Fargo confidence index rose to 15 in August from a one-year low of 14 in July, economists projected. Readings lower than 50 mean more respondents said conditions were poor. The report is due Aug. 16.
Other figures may show the economic recovery will lose momentum, while inflation is contained. The New York-based Conference Board's leading economic indicators index, which measures the outlook for the next three to six months, rose 0.1 per cent in July after dropping 0.2 per cent the previous month, according to the median in the Bloomberg survey. The measure, due Aug. 19, climbed 0.9 per cent a month on average in the six months to March.
Labor Department figures on Aug. 17 may show the producer price gauge rose last month for the first time since March, according to the survey.