Wednesday, June 17, 2009

May sees sharp rise in housing starts and permits

(WASHINGTON) New US housing starts and permits surged in May from record lows, while producer prices rose at a slower pace despite higher gasoline prices, boosting prospects for the economy's recovery from recession.

The Commerce Department said yesterday housing starts jumped 17.2 per cent to a seasonally adjusted annual rate of 532,000 units, as ground-breaking for multi-family units surged 61.7 per cent after falling 49.4 per cent in April.

A separate report from the Labor Department showed the seasonally adjusted index for prices paid at the farm and factory gate increased by 0.2 per cent versus a 0.3 per cent April rise. Prices compared with a year ago notched their steepest falls since 1949.

'It's a sign that housing is stabilising, but it's too early to say that we've seen the bottom. We'd probably need to see several months of stronger sales and better housing starts to give a convincing signal that we're going to see a housing recovery,' said Gary Thayer, senior economist at Wells Fargo Advisors in St Louis.

Housing market data, including new and existing home sales, have shown signs of bottoming in the slide, but the surge in mortgage rates following a spike in Treasury debt yields could hamper recovery.

The housing market's collapse is the main trigger of the longest US decline in output since the Great Depression. A survey on Monday showed US home builder sentiment eased in June as buyers fretted over rising mortgage costs.

Compared to the same period last year, housing starts dived 45.2 per cent. New building permits, which give a sense of future home construction, rose 4.0 per cent, the biggest advance since June last year, to 518,000 units in May.

Building completions fell 3.3 per cent to 811,000 units, dragged down by single family homes which fell 9.4 per cent to a record low 491,000 units. Completions for multi-family units rose 7.7 per cent in May.

The slower pace of increase in May producer prices was a relief for investors who of late have been preoccupied with inflation in the wake of the surge in government bond yields.

Compared with the same period last year, producer prices fell 5 per cent for the largest decline since August 1949, the Labor Department said.

'This is still consistent with inflation being a very moderate risk at this time,' said Zach Pandl, economist at Nomura Securities in New York.

Core producer prices, which exclude food and energy costs, dropped 0.1 per cent in May compared with a forecast for a 0.1 per cent rise, and after a 0.1 per cent increase in April. This was the largest decline in monthly core producer prices since October 2006, when they fell 0.5 per cent.

In contrast with May 2008, core producer prices stood 3 per cent higher.

The Labor Department said that a 2.9 per cent rise in finished energy goods more than offset a 1.6 per cent decline in the index for finished consumer foods for the change in headline producer prices. Petrol prices rose 13.9 per cent.

US industrial production slid a steeper-than-expected 1.1 per cent in May from the prior month with output off sharply at factories, utilities and mines, a Federal Reserve report showed yesterday.

The data suggest that any slowdown in the pace of the recession that many economists have pointed to in recent weeks may be uneven. The capacity utilisation rate for total industry, a measure of slack in the economy, fell to 68.3 per cent, the lowest level on records dating back to 1967. -- Reuters

Source: Business Times, 17 June 2009

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