October 18, 2010

Stocks Close Higher After Mixed Housing, Manufacturing News

Citigroup's profits of $2.17 billion buoy markets

Mixed economic news on the housing and manufacturing fronts did not prevent the stock market from rising as third-quarter bank earnings showed continued strength with Citigroup’s report of $2.17 billion in profits.

Stocks closed higher on Monday, with the Dow Jones industrial average up 80.91 points, or 0.73%, at 11,143.69. The S&P 500 was up 8.52 points, or 0.72%, at 1,184.71. The Nasdaq index closed up 11.89 points, 0.48%, at 2,480.66.

The National Association of Home Builders (NAHB) reported Monday that builder confidence in the market for newly built, single-family homes rose 3 points to 16 on the NAHB/Wells Fargo Housing Market Index (HMI) for October. This was the first improvement registered by the HMI in five months, and returns the index to a level last seen in June of this year.

The rising level of confidence was dampened, however, by the report’s assertion that financing remains scarce for both buyers and builders.

"Builders are starting to see some flickers of interest among potential buyers, and are hopeful that this interest will translate to more sales in the coming months," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich., in a news release. "However, because most builders still

have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market. This problem threatens to severely slow the housing and economic recovery."

In other economic news, industrial production decreased 0.2% in September after having increased 0.2% in August, the Federal Reserve reported Monday.  The capacity utilization rate for total industry edged down slightly to 74.7%, a rate 4.2 percentage points above the rate from a year earlier but 5.9 percentage points below its average from 1972 to 2009.

Economists’ consensus was for a 0.2% rise in industrial production and a 74.8% capacity utilization rate.

“The undershoot to expectations is not as big as the headlines suggest, but this is still a disappointing report,” said Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, in an analyst note. “The weakness is concentrated in manufacturing; output fell 0.2%. For once, autos are not to blame for a surprise number; manufacturing ex-autos was down 0.2% too. We are inclined to regard this as a bit of a fluke; with ISM production at 56.5, output should be rising, albeit slowly. We expect a small rebound in October.”

The production indexes both for manufacturing and for manufacturing excluding motor vehicles and parts also moved down 0.2% in September. For the third quarter as a whole, total industrial production rose at an annual rate of 4.8% after having advanced about 7% in both the first and second quarters.

“The index for manufacturing decelerated sharply in the third quarter,” the Fed reported. “After having jumped at an annual rate of 9.1% in the second quarter, factory output gained 3.6% in the third quarter. At 93.2% of its 2007 average, total industrial production in September was 5.4% above its year-earlier level.”

Read about the NAHB’s September index and  August’s industrial production numbers at AdvisorOne.com.

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