US consumer sentiment drops from 6-year high, housing starts miss expectations
(Reuters) – U.S. 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.”
