U.S. housing offers hope for economy

WASHINGTON Tue Mar 17, 2009 4:32pm EDT

New U.S. housing starts and permits unexpectedly rebounded in February, according to data on Tuesday that provided a rare dose of good news for the recession-hit economy and fractured housing market. REUTERS/Graphics

New U.S. housing starts and permits unexpectedly rebounded in February, according to data on Tuesday that provided a rare dose of good news for the recession-hit economy and fractured housing market.

Credit: Reuters/Graphics

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WASHINGTON (Reuters) - U.S. 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 Commerce Department said housing starts jumped 22.2 percent 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."

Wall Street stocks took heart from the data and rallied throughout the session, with the Dow Jones industrial average closing nearly 2.5 percent higher at 7,395 points. The dollar rose against the yen, but traded slightly lower against the euro.

The data came as the Federal Reserve's policy-setting committee started a two-day meeting at which officials are expected to hold the benchmark interest rate in the current range of zero to 0.25 percent.

The statement at the end of the meeting, expected after 2:15 p.m. EDT on Wednesday will be scrutinized for clues on the central bank's readiness to start buying long-term U.S. government debt to bolster other efforts to jump-start an economy that has been mired in recession since December 2007.

BUILDING PERMITS BOUNCE BACK

New building permits, which give a sense of builders' home construction plans, rose 3.0 percent to 547,000 units last month from 531,000 units in January. Like the rise in starts, the increase was the first since April of last year.

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.

But compared to a year ago, housing starts had slumped 47.3 percent in February and permits were off 44.2 percent.

With the housing market at the center of the financial and economic meltdown, some measure of stability in the sector is widely seen as crucial to rescuing the economy.

The collapse in home prices and stock values has 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 percent last week after edging up 0.2 percent the previous week. Redbook Research reported sales were down 1.1 percent last week, compared to the same period a year ago.

The slump in demand, however, is keeping inflation pressures contained. A report from the Labor Department showed the producer prices index, a gauge of prices received by farms, factories and refineries, increased just 0.1 percent last month compared with January's gain of 0.8 percent.

Producer prices fell 1.3 percent compared with the same period last year, the largest drop since a 1.8 percent decline in September 2002, reflecting a big drop in energy costs.

Core producer prices, which exclude energy and food costs, rose 0.2 percent in February, after a 0.4 percent rise in January, and were 4 percent 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 stabilized, 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.

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