Thursday, June 17, 2010

US housing starts fall but factory output rises

WASHINGTON: Housing starts in the United States fell to a five-month low last month but industrial output rose, evidence of an uneven recovery that has kept inflation at a minimum.

As the government's tax incentives for home buyers expired, new home building dropped 10 per cent to a seasonally adjusted annual rate of 593,000 units, the lowest level since last December, the Commerce Department said yesterday.

Industrial production, in contrast, surged 1.2 per cent.

Some of that was due to a spike in utilities as rising temperatures prompted many Americans to turn on their air-conditioners. But manufacturing output was firm as well, climbing 0.9 per cent, according to the Federal Reserve report.

Despite that performance, prices at the wholesale level retreated last month. The Labour Department's Producer Price Index eased 0.3 per cent as petrol costs tumbled.

The grim housing picture is a concern for economists. Real estate was at the epicentre of the credit crisis, and many believe construction must play a role in any robust recovery.

'These numbers are not good,' said Mr Dan Cook, a senior market analyst at IG Markets in Chicago. 'There's too much (housing) inventory, and it's going to take a while for the industry to work its way through that.' That should contribute to a moderation of the US economic recovery.

The percentage decline in home construction was the biggest in 14 months and April's housing starts were revised down to show a 3.9 per cent increase from a previously reported 5.8 per cent rise. Analysts polled by Reuters had expected housing starts to fall to 650,000 units.

New building permits, which give a sense of future home construction, dropped 5.9 per cent to a 574,000-unit pace last month, the lowest in a year.

The combination of low inflation and still low levels of resource utilisation should allow the Federal Reserve to renew its commitment to low interest rates at next week's meeting, which would help to nurture the economic recovery, analysts said.


Source: Straits Times, 17 Jun 2010

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