/www.bloomberg.com/ Washington, Feb. 17 (Bloomberg) -- Housing is continuing to support growth, and the nation's factories are increasing production, evidence that economic growth is rebounding, reports this week are expected to show.
``The economy is looking solid,'' said James O'Sullivan, an economist at UBS Warburg LLC in Stamford, Connecticut. ``It's not booming, but it's not terribly weak either.''
The expected housing and factory figures would offer fresh evidence that economic growth this quarter is gaining momentum. Reports last week showed manufacturing production in January had the biggest increase in a year, and retail sales excluding autos rose the most in two years. Economists said the pace of expansion this quarter may be four times as high as the 0.7 percent annual rate in the final three months last year.
A report from the Commerce Department Wednesday will probably show that builders broke ground on new homes at an annual rate of 1.78 million in January, compared with a total of 1.705 million last year, based on the median of 46 estimates in a Bloomberg News survey of economists. In 2002, starts were the strongest since 1986.
Colder-than-average temperatures last month caused homebuilding to slow from a 1.835 million pace in December that was the highest in 16 years.
``Unusually frigid weather in most parts of the country probably stalled new construction activity during the month,'' said Joseph Abate, a senior economist at Lehman Brothers Inc. in New York. ``Nevertheless, starts remain very inflated by historical standards. There are few signs yet that housing activity in general is ready to cool.''
Manufacturing Indexes
The lowest mortgage rates in four decades together with rising incomes have made housing a pillar of the recovery. Homebuilding stimulates sales of construction materials, furniture and household appliances.
Indexes measuring manufacturing in New York state and the area surrounding Philadelphia are expected to show that factory activity in both regions expanded for the fourth straight month, suggesting that production across the country is strengthening.
Factories in New York state followed a surge in January with further expansion this month, economists said they expect the Buffalo, New York, branch of the New York Federal Reserve Bank to report Tuesday. The February index probably slipped to 16 from 20.72, based the median estimate in a Bloomberg News survey. A reading greater than zero signals growth; the index has been in positive territory since November and averaged 7.07 last year.
The Philadelphia Fed's manufacturing index, due Thursday, is expected to ease to 11 from 11.2 in January, the survey of economists found. The index also turned positive in November and averaged 7.7 in 2002.
`Geopolitical Concerns'
``Clearly, manufacturing is holding in pretty well,'' UBS Warburg's O'Sullivan said. ``The big question, of course, is what happens next with the geopolitical concerns. The economy is looking fairly strong right now, so if these issues are resolved quickly, it could do reasonably well in the second half of the year.''
The prospect of war with Iraq pushed crude oil prices to a 29- month high last week. The steeper petroleum costs are starting to show up in price indexes. At the wholesale level, producer prices probably rose 0.4 percent in January, the biggest gain in three months, after holding steady the previous month, economists said they expect the Labor Department to report Thursday.
Excluding food and energy, the index probably rose 0.1 percent for the month after falling 0.3 percent in December, the economists survey found.
Higher Fuel Costs
Rising gasoline and home-heating costs probably also pushed consumer prices higher last month, economists said they expect the Labor Department to report Friday. The consumer price index probably gained 0.3 percent last month, three times the 0.1 increase in December. Core prices are expected to rise 0.2 percent after climbing 0.1 percent.
Other reports this week:
On Thursday, the Commerce Department will probably report that the nation's trade deficit narrowed in December to $38.5 billion from a record $40.1 billion in November, which reflected a surge in imports following the shutdown of West Cost docks a month earlier.
Also Thursday, the Labor Department will probably report that 385,000 people filed initial applications for unemployment benefits in the week ended Saturday. It would be the seventh week in the last eight that claims have been lower than 400,000, suggesting firings may be slowing, economists said.
On same day, the Conference Board, a New York research group, is expected to report that January's leading indicators, a gauge of how the economy will perform in three to six months, held steady, restrained by falling stock prices, after rising 0.1 in December.
On Friday, the Treasury Department will probably report the federal government budget surplus for January dropped to $10 billion from $43.7 billion in the same month last year, when a legislated shift in corporate tax payments took place that won't be repeated this year.