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U.S. Housing Starts and Permits Rise Less Than Expected

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.

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.

"People have been shocked by how much mortgage rates have risen in the past couple of months," said Christopher Low, chief economist at FTN Financial in New York. "I think we will see an increasingly cautious consumer in the second half."

Against the backdrop of higher mortgage rates, consumers were less upbeat about housing in August, the survey showed.

Rising borrowing costs also appear to be making builders cautious about breaking ground on new projects.

Housing starts rose 5.9 percent to a seasonally adjusted annual rate of 896,000 units, the Commerce Department said in a separate report. While that was a recovery from June's decline, it was below economists' forecasts for a 900,000-unit rate.

"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.

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 U.S. central bank to make an announcement on tapering at its policy meeting next month.

LABOR, SUPPLY CONSTRAINTS

U.S. government bond yields pushed to two-year highs in anticipation of the Fed action, while the dollar rose against a basket of currencies. U.S. stocks were little changed after taking a beating on Thursday.

In July, permits for future home construction jumped 2.7 percent in July to a 943,000-unit pace. The increase was a touch below economists' expectations for a 945,000-unit pace.

Daniel Silver, an economist at JPMorgan in New York, said the July housing starts data made it less likely residential investment would reach the 17-percent annual pace that the investment bank expects for the third quarter.

Hitting that target is one of the assumptions underpinning JPMorgan's 2.5 percent GDP growth estimate for that quarter.

July data on industrial production, residential construction and employment have missed market forecasts. The economy grew at a 1.7 percent pace in the second quarter.

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, the fundamentals for housing remain favorable. With permits outpacing starts, economists expect residential construction to continue rising and 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.

"As anecdotal evidence suggests, builders may be holding back on new construction in part to reap the benefits of higher prices," said Guy Berger, an economist at RBS in Stamford, Connecticut.

"Eventually, though, the dynamics at play in the housing market will likely lead builders to boost groundbreaking activity further from its current pace."

Last month, groundbreaking for single-family homes, the largest segment of the market, fell 2.2 percent to the lowest level since November last year. Starts for multi-family homes jumped 26 percent, reversing the prior month's decline.

Permits for multi-family homes rose 12.6 percent, but approvals for single-family homes fell 1.9 percent.

(Reporting by Lucia Mutikani, additional reporting by Richard Leong and Steven C Johnson in New York; Editing by Paul Simao)

2 Infant Formula Makers to Cut Prices After China Starts an Investigation

Wyeth Nutrition, which Nestlé bought last year, said this week that it had been cooperating with the investigation by the National Development and Reform Commission of China and was responding by cutting prices and improving sales and marketing practices.

Danone, which has also acknowledged that its Dumex unit was cooperating with the Chinese commission, said in an e-mail statement that it was preparing a price cut proposal with details to be disclosed later.

Both companies, along with Mead Johnson Nutrition and Abbott Laboratories, said earlier this week that they were being investigated by the Chinese commission.

In a statement, Wyeth Nutrition said it “decided to implement a price reduction” of products from July 8 through 2014. “The average reduction will be at 11 percent, with the biggest single product price reduction at 20 percent.”

The company said it would not raise prices on any new products over the next year. Wyeth did not give any further details.

Analysts said the investigation could result in fines and tougher rules governing imports into an infant milk market expected to grow to $25 billion by 2017. The firms could face fines ranging from 1 percent to 10 percent of their annual sales, the state-run Xinhua news agency quoted experts as saying.

Some analysts see the inquiry as possibly part of a broader Chinese plan to increase consumption of local infant-milk products. Mothers turned away from Chinese milk powder in 2008 when infant formula tainted with the industrial compound melamine killed at least six babies and made thousands sick with kidney stones.

China has since made efforts to crack down on persistent food safety problems that have included chemical-laced pork and infant milk contaminated with cancer-causing agents.

Some Chinese producers of infant formulas have started forming partnerships with foreign companies to try to increase brand recognition and gain technical expertise.

Foreign brands may also soon have to rely on their Chinese partners if they want greater access to the Chinese market. The Chinese government has expressed an interest in bringing the supply chain under the control of Chinese firms as part of its goal of reducing the number of local infant formula producers to 10 from more than 200 within two years.

Strategies: Japan Starts to Recharge After Two Lost Economic Decades

Envious foreigners called its export-driven economy a “miracle.” Its real estate and stock markets seemed to defy gravity, and its financiers were so flush with cash that they bought skyscrapers, golf courses and corporate empires far from Japan’s shores.

Then the bubble burst. In 1990, Japan began more than 20 years of stagnation and deflation. Invest in Japan? For most foreigners, it was wiser to avoid it. At the end of 1989, the Topix, a k a the Tokyo Stock Price index, reached 2,881. Now it’s less than half that.

It’s possible, at least, that those lost decades are finally over. Japanese markets have become turbocharged again, and are beginning to move markets worldwide. This year alone, the Topix has risen more than 22 percent in dollar terms, far exceeding the gain of the Dow Jones industrial average and nearly every other major stock market. The yen has weakened sharply, trading at more than 100 to the dollar for the first time in four years. That exchange rate should make many Japanese companies more profitable and more competitive. It may also inject inflation into the Japanese economy, encouraging consumers to spend and companies to invest.

“What is happening in Japan is revolutionary,” said Mohamed El-Erian, the chief executive of Pimco, one of the world’s largest bond managers. “Nothing they’ve done since the Second World War comes close in terms of economic experimentation,” he said.

It’s far too soon to judge whether “Abenomics” — the new policies of Prime Minister Shinzo Abe and Haruhiko Kuroda, the Bank of Japan governor — will be successful. But they have already begun to change expectations within Japan and around the world.

Most crucially, there are signs that the policies may be breaking Japan’s debilitating spiral of deflation. In April, Mr. Kuroda declared that Japan would achieve an inflation target of 2 percent within two years — an ambitious goal that he said he would achieve by doubling the country’s monetary base.

The central bank, which has already been holding short-term interest rates near zero, is making direct purchases of long-term bonds and other securities. That program of quantitative easing is enormous, Mr. El-Erian said: “It is much bigger than the Federal Reserve’s in the United States, when you consider the size of the two economies.”

Is the new monetary policy working? It hasn’t been in place long, and no up-to-date inflation data is yet in hand. The latest government figures show that in March, Japan’s consumer price index fell 0.5 percent, annualized, a deflationary reading. But Japan’s bond prices imply that expectations for inflation two years from now have already jumped to well above 1.6 percent.

“It’s not quantifiable yet, but the psyche of the Japanese consumer may actually be changing,” said Taizo Ishida, lead manager of the Matthews Japan fund, a stock mutual fund for American investors. “Anecdotally, you can feel it,” he said. “People are beginning to put money into equity mutual funds in Japan, and consumers are buying luxury goods. But we’ll have to see where this ends up.”

MR. ABE, who faces elections in July in the upper house of the Diet, Japan’s parliament, has not unveiled all the details of his policy, which comprises “three arrows”: monetary easing, fiscal policy and structural reform. Monetary easing is the only one of the three that is substantially under way. It appears to be largely responsible for the yen’s weakening and could have a sharp impact.

Forced for many years to adjust to competitive pressures from overseas, Japanese companies said in a government survey last year that they were profitable at an exchange rate of 84 yen to the dollar, a big change from 1986, when they said they needed a rate of 175 yen to the dollar.

The current rate of more than 100 yen to the dollar will make many export-oriented companies much more profitable, said Eileen Dibb, a portfolio manager and Japan specialist at Pyramis Global Advisors, the institutional arm of Fidelity Investments. Her portfolios include Toyota and Fuji Heavy Industries, and both should benefit from the yen depreciation, she said. While the cheaper yen could heighten trade frictions, Mr. Abe says he would like Japan to join the negotiations for the Trans-Pacific Partnership, an Asia-Pacific free trade pact supported by the Obama administration.

Ms. Dibb is bullish on the Japanese stock market, saying it is still quite reasonably priced even after its recent run. In 1988, for example, the Topix traded at a price-to-book ratio of 6.5, compared with only 1.4 today, yet current earnings are attractive and strengthening. For the first time in years, she says, the outlook is extremely positive. “It’s as though Japan has turned the lights back on,” she said.

Mr. Abe has adopted a stimulative fiscal policy. It may give the economy a short-term boost, but in a speech in April, Christine Lagarde, managing director of the International Monetary Fund, warned that Japan’s fiscal policy “looks increasingly unsustainable,” saying its debt-to-G.D.P. ratio is now nearing an extraordinarily high 245 percent.

Japan has some factors in its favor, however, making it quite different from debt-burdened countries like Greece, said M. Campbell Gunn, portfolio manager of the T. Rowe Price Japan fund. Japan’s debt is overwhelmingly financed by its own citizens, he noted; it is denominated in its own currency, and Japan runs a steady current-account surplus, all of which insulate it from bond market pressure.

Furthermore, he said, Japan can reduce debt by privatizing or more efficiently operating billions of dollars worth of state-owned assets, like the nation’s ports and its postal system, which doubles as a gigantic savings bank. “Japan now is in some ways like the U.K. before Margaret Thatcher,” he said. “There is much that could be done if the government wanted to do it.”

Structural problems, however, are major impediments to economic growth. Japan’s population has been aging and declining in size, said Roger Aliaga-Díaz, a senior economist at Vanguard. Unless Japan permits enough immigration to offset this, he said, demographic constraints are likely to trim gross domestic product by 1.3 percentage points a year. “That’s a big hurdle for Japan,” he said.

Shifts like raising the retirement age and removing impediments to work force participation by women could improve matters, but improvements are likely to be slow in coming, he said.

Still, Japan’s markets have awakened, its economy may be reviving, and the flood of yen is certainly flowing into other markets around the world, Mr. El-Erian said. “This is an ambitious effort,” he said. But, he added, “Japan’s mounting debt load and difficult structural problems make this program a very high-risk and high-reward one.”

Off the Charts: Housing, Ailing for Years, Starts to Recuperate

The housing industry made no contribution at all.

Now it appears that industry is finally starting to recover. Housing starts are rising at a rapid rate, albeit from a very low level. And last year, residential construction spending, adjusted for inflation, climbed 12 percent, after declining for a record six consecutive years.

The Census Bureau reported this week that single-family housing starts rose to a seasonally adjusted annual rate of 618,000 in February, the highest level since June 2008, months before the collapse of Lehman Brothers turned a recession into a global credit crisis.

Over the last 12 months, 551,000 single-family units were started, and an additional 255,000 multifamily units. As is shown in the accompanying charts, that was an increase of 28 percent from the period a year earlier. Not since the early 1980s, when the economy was coming out of a double-dip recession caused in large part by soaring interest rates that made homes unaffordable, had starts risen so rapidly.

But as can also be seen from the charts, the recovery has not propelled the housing industry far. The total level of starts is still lower than at any time before the recession, and in the fourth quarter of last year, the residential construction industry accounted for only 2.6 percent of the total gross domestic product. That figure was up from the low, reached in mid-2009, of just 2.2 percent, but it was far below the 6.3 percent reached in late 2005, when the housing bubble was at its peak.

The last time housing construction contributed so little to the economy was during World War II.

In normal economic recoveries, housing construction supplies a substantial part of the growth recorded in the first year or two after the recession ends. But in this recovery, it kept shrinking. Over all, real housing spending contracted in every year from 2006 to 2011. But the 12 percent gain last year was the fastest since 1993, another period of recovery.

The building industry, devastated by the collapse of the boom, is only starting to recover. The number of new homes offered for sale peaked at 570,000 in mid-2006, as the boom was ending, and many of the homes built then took years to sell. The latest figures show that only 150,000 new homes were offered for sale in January, including houses that are planned as well as those partly or completely built. That is up only a little from the low of 142,000 reached last summer.

The number of homes being offered before construction begins has remained close to level for two years at a little more than a quarter of the peak. That is a sign that few new communities have been started, despite the rise in housing starts.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Housing Starts Rose in February

WASHINGTON — American builders started more houses and apartments in February than a month earlier, the Commerce Department reported on Tuesday, pointing to a housing recovery that was gaining strength.

The government said builders broke ground on homes at a seasonally adjusted annual rate of 917,000, an increase from 910,000 starts in January. February’s performance was the second-fastest pace since June 2008, behind December’s pace of 982,000.

Single-family home construction increased to an annual rate of 618,000, the strongest level in four and a half years. Apartment construction also ticked up, to 285,000.

The gains are likely to grow even faster in the coming months. Building permits, a sign of future construction, increased 4.6 percent, to 946,000, last month. That was also the most since June 2008, just a few months into the Great Recession.

The American housing market is recovering after stagnating for roughly five years. Steady job gains and near-record-low mortgage rates have encouraged more people to buy.

Still, the supply of available homes for sale remains low. That has helped push up home prices, which rose nearly 10 percent in January compared with the period a year earlier, according to CoreLogic. The price gain was the biggest increase in nearly seven years.

The number of previously occupied homes for sale has fallen to its lowest level in 13 years. And the pace of foreclosures, while still rising in some states, has slowed sharply on a national basis. That means fewer low-priced foreclosed homes are being dumped on the market.

Those trends, and the likelihood of further price gains, have led builders to step up construction. Last year, builders broke ground on the most homes in four years.

Homebuilders have become much more confident in the last year. But in March, a measure of homebuilder confidence fell for the second consecutive month over concerns that demand for new homes was exceeding supplies of land, building materials and workers. In the short term, that could slow sales.

But the survey noted that the outlook for sales over the next six months rose to its highest level in more than six years.

Though new homes represent only a fraction of the housing market, they have an outsize effect on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics from the homebuilders.

Reed Smith Starts Emergency Relief and Injunction Practice

Reed Smith has created a new practice group geared toward helping clients in need of emergency litigation services. The emergency relief and injunction team consists of nine members of the firm?s commercial litigation and disputes practice.

Reed Smith Starts Emergency Relief and Injunction Practice

Reed Smith has created a new practice group geared toward helping clients in need of emergency litigation services. The emergency relief and injunction team consists of nine members of the firm?s commercial litigation and disputes practice.

U.S. Housing Starts Up 15% in September

WASHINGTON (AP) — U.S. builders started construction on homes in September at the fastest rate since July 2008 and made plans to build even more homes in the coming months. The gains show the housing recovery is strengthening and could help the economy grow.

The Commerce Department said Wednesday that home construction rose 15 percent last month to a seasonally adjusted annual rate of 872,000. Single-family construction rose 11 percent to the fastest rate in four years. Apartment building increased 25.1 percent.

Applications for building permits, a sign of future construction, jumped nearly 12 percent to an annual rate of 894,000, also the highest since July 2008.

"If there was any doubt that the housing market was undergoing a recovery, even a modest one in the face of the terrible 2008 decline, those doubts should be erased by now," said Dan Greenhaus, chief global strategist at BTIG.

The construction rate has increased by more than 38 percent over the past 12 months.

Housing starts are now 82.5 percent above the recession low rate of 478,000 hit in April 2009. That's still well short of the 1.5 million that economists consider healthy and far below the more than 2 million built in 2007 — the peak of the housing boom. But the steady upward trend suggests builders believe the housing rebound is durable.

"This is a good report," said Patrick Newport, U.S. economist at HIS Global Insight. "It is telling us that the housing market is improving and there is no reason to think that this will not continue going forward."

Record-low mortgage rates, stable price increases and a limited supply of previously occupied homes have made newly built homes more attractive to buyers. Builder confidence is at a six-year high, according to a survey released Tuesday by the National Association of Home Builders. And the Federal Reserve's aggressive policies could push long-term interest rates even lower, making home-buying affordable for the foreseeable future.

Newport said housing starts should total 750,000 for the year. He expects starts will climb to 950,000 next year and 1.27 million in 2014. By 2015, he said home construction should reach more than 1.5 million.

He also predicts that housing will add about 0.25 percent to overall economic growth this year. If that forecast proves accurate, it will be the first year that housing has been a positive factor for economic growth in five years.

"The rest of the economy is still struggling but housing is doing better because as the population grows, we need new houses to meet that demand," Newport said.

Sales of new homes were up nearly 28 percent in August compared with the same month last year. Even with the gains, sales remain near depressed levels. Economists say more jobs and better pay are needed to help accelerate sales.

Though new homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the home builders group.

Construction activity rose in three of the nation's four regions. The biggest increases came in the West and South. Housing starts increased by nearly 20 percent in both regions. Construction of new homes and apartments rose 6.7 percent in the Midwest. Housing starts fell 5.1 percent in the Northeast.

Crédit Agricole Starts Talks to Sell Its Greek Unit

PARIS — Crédit Agricole, the big French bank, said Monday it had begun exclusive talks to sell its Greek unit, Emporiki, to Alpha Bank for a symbolic one euro.

Crédit Agricole, which has the largest exposure of any European lender to the troubled Greek financial sector, is trying to reduce the possible damage if Greece were to leave the euro. Alpha Bank is one of Greece’s largest banks.

Already, many of the loans Greek banks made during the days of easy credit have soured after years of financial crisis and austerity-induced recession. An exit, which would probably be accompanied by a sharp devaluation of the new Greek currency against the euro, would further reduce the value of those loans when translated into euros.

Crédit Agricole's gamble on Greece has been a spectacularly bad one. The bank in 2006 paid €2.2 billion, or $2.8 billion, for its stake in Emporiki, which is based in Athens, but its losses from the unit are now approaching €6 billion.

Representatives of the International Monetary Fund, the European Central Bank and the European Commission were in Athens on Monday to discuss a new austerity package as Finance Minister Yannis Stournaras presents the 2013 budget plan to Parliament. The proposal is expected to include new measures, including tax increases and spending cuts, to reduce the 2013-2014 budget by €13.5 billion.

As part of its deal with Alpha Bank, Crédit Agricole said it would inject another €550 million into Emporiki, on top of the €2.3 billion it injected in July.

The Hellenic Financial Stability Fund, the Greek banking support agency, had made it a condition of any sale of Emporiki that the bank be recapitalized.

The French bank will also buy €150 million of convertible bonds to be issued by Alpha Bank. All told, the French bank’s funding to Emporiki would fall by €700 million.

Aurélie Marboeuf, a Credit Agricole spokeswoman, said the bank would book a loss of around €2.8 billion before taxes when the sale closes, possibly as early as the third quarter of this year.

These measures will help it reach its solvency targets for the end of 2013, she said.

Alpha Bank said in a statement that the deal would result in a €3 billion recapitalization of the combined Alpha-Emporiki and would contribute toward Alpha Bank’s own recapitalization, and that the combined group would have about 19 percent of Greek deposits and 25 percent of lending.

Alpha said it expected “substantial” synergies from the deal, including €150 million in annual cost savings from economies of scale.

Société Générale, another French lender, said in late August that it was in advanced talks to sell its 99.1 percent stake in Geniki Bank, a large Greek bank, to Piraeus Bank, also a Greek bank.