US data suggests soft: patch continues

US factory output slipped for the first time in 10 months in April as a shortage of parts from Japan crimped activity while home building slumped, showing the economy got off to a weak start in the second quarter. Signs of lacklustre economic activity were also evident in corporate results on Tuesday from Wal-Mart Stores and Home Depot, both of which reported a drop in sales.
"It's a sluggish start," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "Since the beginning of this year the recovery seems to have hit a bit of a soft patch, but conditions should improve for the remainder of this year." Manufacturing output fell 0.4 percent, breaking nine straight months of gains, as supply disruptions from Japan's earthquake hit auto production, the Federal Reserve said.
Overall industrial production was flat, with gains in mining and utilities offsetting the drop in factory output. Excluding cars and parts, manufacturing output rose a sluggish 0.2 percent.
-- Factory output drops for first time since June 2010
-- Housing starts slide 10.6percent, weather cited
-- Building permits fall 4 percent
A separate report from the Commerce Department showed groundbreaking for new housing dropped 10.6 percent to an annual rate of 523,000 units as a glut of homes on the market discouraged new projects. Though March's housing starts were revised up substantially, it was not enough to soften the blow from last month's drop. Economists, who had expected starts to rise to a 568,000-unit rate, said tornadoes that lashed parts of the country last month were partly to blame for the drop. Starts in the tornado-ravaged South slumped to a two-year low.
Manufacturing has been leading the recovery and economists expect it to bounce back as auto supply disruptions fade. Housing, however, is a different matter. Construction is being crowded out by an oversupply of homes on the market, in particular, foreclosed properties that sell well below their value.
In March, the spread between the prices of new and previously owned houses was about $54,200. A report on Monday showed that while builders expected a modest improvement in sales during spring, they anticipate market conditions to weaken in the next six months. Analysts estimate there are between 8 and 9 million homes on the market, including the so-called shadow inventory - foreclosed properties and those which are about to be repossessed by banks.
The weight on the economy will be limited, however, since residential construction only accounts for about 2.2 percent of gross domestic product. In addition, with the labour market showing signs of life, analysts are guardedly optimistic of a slight improvement as the year progresses. A similar outlook was shared by Home Depot, which raised its profit forecast for the year despite a slow start to the spring selling season.