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August 28, 2019 10:30 AM, EDT

Trade War Hits Housing as Building in US Factory Areas Slows

Housing starts Ty Wright/Bloomberg News

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Homebuilders are pulling back from U.S. manufacturing areas as shots fired in President Donald Trump’s trade war begin to ricochet across the economic landscape.

In major manufacturing counties, permits to build single-family houses declined 3.8% in the second quarter from a year earlier, compared with 11% annual growth in the same period of 2017, according to an analysis by the National Association of Home Builders. Nonmanufacturing areas also cooled, but not as sharply.

The permit slowdown in factory towns began in early 2018 as the Trump administration’s tough talk about China and other trading partners intensified, adding to the kind of economic uncertainty that makes would-be buyers and builders hesitate. The U.S. began imposing tariffs on washing machines and solar panels in January of that year, and on steel and aluminum two months later.

“As manufacturing activity slows, the local economy slows, and that reduces the incentive to build new housing,” Rob Dietz, the group’s chief economist, said in an email.

Graph

A preliminary IHS Markit index of U.S. factory activity for August showed the sector contracted for the first time in almost a decade. A gauge from the Kansas City Fed showed manufacturing in the region shrank by the most since 2016.

Buyers concerned about a job slowdown are more reluctant to purchase new homes, which tend to be more expensive than existing ones, said Mark Zandi, chief economist at Moody’s Analytics.

“Builders are more cautious because they feel, if I build this, will they buy?” Zandi said in a phone interview. “Trump country is getting creamed by the trade war, and housing is just a casualty.”

Single-family construction in manufacturing areas, which accounts for about a 10th of the U.S. total, was outpacing the rest of the country throughout 2016 and 2017. Those counties are heavily concentrated in the Midwest and the South.