US housing construction rose unexpectedly last month and manufacturing in the mid-Atlantic region was surprisingly strong in January, according to data on Thursday suggesting the economy was in good health.
Consumer prices outside of energy costs rose modestly, but there was a surprise decline in initial claims for state unemployment aid last week, continuing a series of recent reports painting an unexpectedly robust economic picture.
The reports bolstered a view that interest rate cuts from the US Federal Reserve were unlikely any time soon.
Meanwhile, in testimony before Congress, Fed Chairman Ben Bernanke warned that failure to deal with budgetary strains posed by an ageing US population could lead to serious economic harm. Financial markets, however, reacted to the day's strong data.
The Philadelphia Federal Reserve's regional factory report, the latest data released on Thursday, is "another signpost that the economy is on a good track," said Lynn Reaser, chief economist at Banc of America Capital Management in Boston.
"The bond market will see this as another sign that the economy is growing at a better-than-expected pace and will continue to dim the prospects of an easing by the Fed, at least in the near-term future."
The Philadelphia Fed said its business activity index - seen as an early indicator of the health of the US manufacturing sector - hit its highest level since August 2006, when concerns of an economic slowdown were taking hold.
The index hit 8.3 in January, up from a revised -2.3 in December. Wall Street analysts had forecast a rise to 3.0. Indicating a decline in inflationary pressures, the Philadelphia Fed's prices paid index fell to its lowest level since July 2003.
Prices for US government bonds fell initially after the data but recovered amid strong bargain hunting. The dollar rose but US stocks were down, led by losses in technology shares.
The Commerce Department said housing starts climbed 4.5% in December to a seasonally adjusted annual rate of 1.642 million units from November's 1.572 million. Wall Street economists had expected a decline.
"The housing starts is a weather story," said Keith Hembre, chief economist with FAF Advisors in Minneapolis. "I wouldn't take it as conclusive evidence that the housing downturn is over in a sustained manner."
For 2006 as a whole, housing starts totalled about 1.8 million, down 12.9 percent from 2005 - the biggest annual decline in 15 years.
While December's starts may have shown false strength, permits for future building activity also rose, a potential sign market conditions were stabilising.
In a separate report, the Labor Department said its Consumer Price Index increased 0.5 percent in December, the sharpest gain in eight months, as prices for energy products shot up.
Outside of volatile food and energy costs, however, the CPI advanced just 0.2 percent.
"The details of the CPI are actually quite favourable," Hembre said.
For the full year 2006, consumer prices increased by 2.5%, an improvement over 2005 when they rose 3.4%.
In December, energy prices shot up by 4.6% after a 0.2% fall in November and much larger decreases in September and October. Some of the increases in energy prices are likely to prove fleeting since world oil prices have come down in recent weeks.
The December rise in energy prices was the biggest since a 5% increase in January 2006, the department said. Another report from the Labor Department showed the number of Americans filing new claims for jobless benefits dropped by a surprisingly large 8,000 last week to 290,000, the lowest level in 11 months.
A four-week moving average of claims, which smoothes weekly volatility, also fell last week to 308,000 from 314,500 in the prior week. It was the smallest number for the moving average of claims since 305,500 in the week ended last October 21.
