Service industries in U.S. grow at faster pace than forecast

Euro Area

A report last month showed euro-area services and factory output unexpectedly slowed in October. A composite index based on a survey of purchasing managers in both industries declined to 51.5 this month from 52.2 in September, Markit Economics said Oct. 24.

In the U.S., gains this year in homebuilding have boosted services providers such as real-estate companies and home- improvement retailers.

Further progress depends in part on borrowing costs. The rate on 30-year home loans averaged 4.1% in the week ended Oct. 31, the lowest since June. It reached a two-year high of 4.58% in the week ended Aug. 22.

Standard Pacific Corp. said on Oct. 31 that orders for homes increased 12% in the third quarter from the same three months last year, the smallest year-over-year gain since the second quarter of 2011. The Irvine, California-based builder also said it delivered 1,217 homes during the period, the most since the second quarter of 2008.

Interest Rates

“Rapid home price appreciation, increased interest rates, and economic and political uncertainty have all contributed to an environment that has impacted consumer confidence and tempered the robust demand we experienced during the first half of the year,” Scott Stowell, president and chief executive officer at Standard Pacific Corp., said on a Nov. 1 earnings call.

“We have always maintained that the housing market recovery would likely be an uneven one and that there would be bumps along the road to recovery. But we are certainly experiencing a few of those bumps now. When looking longer term, we continue to maintain a cautious but positive outlook. The fundamentals for housing still look good,” Stowell said.

Weyerhaeuser Co., a timber supplier and developer based in Federal Way, Washington, expects to close more than 1,100 homes in the last three months of this year, up about 35% from a year ago, President and Chief Executive Officer Doyle Simons said.

Housing Fundamentals

“We continue to be encouraged as long-term favorable housing fundamentals remain in place,” Simons said on an Oct. 25 earnings call. “With that said, the housing recovery appears to have taken a slight pause due to higher home prices, higher interest rates, although still very low by historical standards, slowing job growth and the antics of our government.”

Auto dealers have also enjoyed stronger demand this year, putting the industry on pace for its best year since 2007. At the same time, sales have cooled the last two months after climbing in August to the highest since November 2007. Purchases of cars and light trucks sold in October at a 15.2 million annualized rate, little changed from the previous month.

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