Home prices, a driver of consumer confidence and demand in housing related industries like home improvement, are tracking up over 3% year to date and continuing to rise. Combined with direct investment and employment in the housing industry, increasing prices support consumer confidence and more general personal expenditures.
-Stephen Sheehan, associate analyst, Columbia Management
After leading the U.S. out of the Great Recession, the manufacturing sector has recently begun to show signs of sputtering. Uncertainty surrounding the election and fiscal cliff in the U.S., decelerating growth in China and a perpetually weak Europe have led to a soft patch in the third quarter. This global hiccup has caused some U.S. companies to catch a cold, most notably those in heavy machinery, transportation, metals and mining, and general industrials. One area that has been able to buck this recent trend however, has been the U.S. housing sector which capped off a string of better than expected data points with a four year high 872,000 new home starts in September. Consequently, many are wondering: Can housing save the U.S. economy?
As of 2011, manufacturing accounted for 12.2% of U.S. gross domestic product (GDP), indicating that the recent 2% deceleration in industrial production would deduct 0.25% from GDP growth should this trend continue. At its projected growth rate of 20% next year, residential fixed investment alone would add as much as 0.5% growth, even though it is only 2.5% of GDP. Of course, strength in the housing sector not only impacts fixed residential investment, but can also spur commerce in building products, financial services, consumer electronics, etc. This “housing multiplier” is difficult to estimate, but it certainly would be additive.