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Housing in the US - Source: Reuters -
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US housing starts and permits rebounded in February from record lows, rising for the first time in 10 months, according to data on Tuesday that gave a glimmer of hope for the recession-hit economy.
Analysts said while the data did not mark a change in trend for the depressed housing market, it hinted at some stability that could ease pressure on the economy going forward.
The news also helped underpin modest early gains on Wall Street, which could be on track for its fifth rise in six days if stocks maintain the momentum.
The Commerce Department said housing starts jumped 22.2% to an annual rate of 583,000 units last month from 477,000 units in January. It was the biggest percentage rise since January 1990 and the first gain since April.
"Even if we get housing starts just sort of bouncing along the bottom for a while, at least that means they won't be subtracting from GDP growth," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.
"At least that's the end of home building being a negative for the economy, even if it's not going to turn very positive. This could be the end of the downward trend, but I don't think it's likely to be the beginning of an upward trend."
US stocks climbed in choppy trade on the data, while the US dollar rose against the yen.
The data came as the Federal Reserve's policy-setting committee prepared to open a two-day meeting at which officials are expected to hold the benchmark interest rate in the current range of zero to 0.25%.
The statement at the end of the meeting on Wednesday will be scrutinised for clues on the central bank's readiness to start buying long-term US government debt to bolster other efforts to jump-start an economy that has been in recession since December 2007.
Building permits bounce back
New building permits, which give a sense of builders' home construction plans, rose 3.0% to 547,000 units last month from 531,000 units in January. Like the rise in starts, the increase was the first since April.
The bounce in both groundbreaking activity and future building plans comes in the wake of a severe slump that has helped push the financial sector into crisis.
Compared to a year ago, housing starts were down 47.3% in February and permits were off 44.2%.
With the housing market at the center of the financial and economic meltdown, some measure of stability in the sector is crucial to rescuing the economy.
The collapse in home prices and stock values hit American households hard. While retail sales have shown surprising resilience in the past two months, weekly chain store sales figures released on Thursday indicated weakness.
The International Council of Shopping Centers said chain store sales dipped 0.1% last week after rising 0.2% the previous week. Redbook Research reported sales were down 1.1% last week, compared to the same period a year ago.
The slump in demand is keeping inflation pressures contained. A report from the Labor Department showed the producer price index, a gauge of prices received by farms, factories and refineries, increased just 0.1% last month versus January's gain of 0.8%.
Compared with the same period last year, producer prices fell 1.3%, the largest drop since a 1.8% decline in September 2002, and a decrease that reflects a big drop in energy costs.
Core producer prices, which exclude energy and food costs, rose 0.% in February, after a 0.4% rise in January, and were 4% above the year-ago level.
"Pricing power is disappearing for a wide range of industries. Both intermediate and core prices are still falling, suggesting more price relief to come," said Chris Low, chief economist at FTN Financial in New York.
"The immediate threat of deflation may be fading now that oil has stabilised, but true deflation, at the core, is still building momentum," he said of the risk of a broad, sustained decline in prices that could further hobble the economy.
