US Companies See Significant Second-Half Housing Slowdown

According to a survey by the National Association for Business Economics (NABE), most U.S. companies foresee weaker second-half growth and a "substantial'' slowdown in housing, and plan to hire and invest less. The survey was conducted from Oct. 1 to Oct. 16, and included responses from 113 members of the business economist group.  
 
The NABE survey indicated that fifty-six percent of the businesses said they were more pessimistic this month, twice the share in a July survey. For the first time since 2002, a majority projected the economy will grow 2 percent or less at an annual pace in the second half.  
 
The report echoes concerns voiced by Federal Reserve policy makers including Chairman Ben S. Bernanke, who last week said housing would remain a `”significant drag'' on growth into next year. Just more than a third of those surveyed said recent lending restrictions had affected their business.  
 
“Business activity, capital spending and hiring slowed in the third quarter in response to tightening credit conditions and a rapidly deteriorating housing market,'' Sara Johnson, an economist at Global Insight Inc., a forecasting firm in Lexington, Massachusetts, said in a statement. ``The housing- market outlook turned from bad to worse.''  
 
Almost all respondents said they project a further decline in housing, with 54 percent forecasting the slowdown would be `”substantial,'' or greater than 5 percent.  
 
Seventeen percent more businesses said they would increase hiring in the next six months than planned to reduce payrolls, down from 24 percent in the previous survey done in July.  
 
The subprime mortgage market debacle during August that threatened to spillover into the broader economy spurred the Fed to lower its benchmark rate by half a point last month. That was more than most economists forecast and the first cut in four years.  
 
Economists forecast the Fed will reduce the rate again when it meets later this month because of conditions in housing.  
 
Forty-three percent of the companies surveyed by group said they plan to boost spending on new plants and equipment in the next 12 months, down from 50 percent in the prior survey. The largest retrenchment was among businesses engaged in finance, insurance and real estate, the report showed.  
 
Respondents were about split on whether the housing slowdown would have an impact on their businesses with 51 percent saying it would have an effect and 46 percent predicting little or no influence. Two-thirds of the manufacturers surveyed thought their business would be affected.  
 
Peoria, Illinois-based Caterpillar Inc., the world's largest maker of bulldozers and dump trucks, on Oct. 19 cut its full-year profit forecast as the housing slump reduced sales of construction equipment in North America.  
 
Thirty-six percent reported that stricter lending guidelines following the collapse in the subprime mortgage market in August have hurt their businesses. Half the financial firms and 45 percent of the manufacturers polled reported a negative impact.