Housing starts drop in January, PPI up 0.2 percent

NEW YORK Wed Feb 20, 2013 2:28pm EST

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NEW YORK (Reuters) - Groundbreaking to build new U.S. homes fell in January but new permits for construction rose to a 4 1/2-year high, reinforcing expectations the housing market will support economic growth this year.

The Commerce Department said on Wednesday that starts at building sites for homes fell 8.5 percent last month to a 890,000-unit annual rate.

The decline was due to a sharp drop in the volatile multi-family unit category, which fell 24.1 percent during the month. Starts for single-family units, which comprised about two thirds of the total, edged up 0.8 percent to their highest level since July 2008.

Permits for future home construction rose to a 925,000-unit rate, the quickest since June 2008.

U.S. producer prices rose in January for the first time in four months as rising food costs offset weak gasoline prices, but sluggish economic growth should keep price pressures muted.

The Labor Department said its seasonally adjusted producer price index increased 0.2 percent last month after slipping 0.3 percent in December.

The increase in prices received by farms, factories and refineries was below the 0.4 percent gain economists had expected. Details of the report offered no sign of price pressures.

In the 12 month through January, wholesale prices were up 1.4 percent. That followed a 1.3 percent increase in December.

COMMENTS:

CARY LEAHEY, SENIOR ADVISOR, DECISION ECONOMICS, NEW YORK:

"The housing starts report was not as bad as it looked for two reasons. Starts did decline about twice as much as anyone had been looking for, but the decline happened in the multi-family area which tends to be volatile and permits for future construction rose.

"Single-family starts actually rose modestly in January. Both single-family permits and multi-family permits rose between 1.5 and 2 percent to the highest levels they've been in quite some time. That suggests housing starts will bounce back in February and March."

SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK:

"The housing data was disappointing on the headline but it is coming off of a really strong December, and the breakdown wasn't terrible - permits held up. This may be a correction of sorts but nothing to signal any newfound worries in the housing market.

There was nothing surprising in producer prices. There was nothing really to worry about there either to the upside or the downside."

STEPHEN STANLEY, CHIEF ECONOMIST, PIERPOINT SECURITIES, STAMFORD, CONNECTICUT:

PPI: "They are very much in line with expectations. We might see a jump in the February number because of the spike in gasoline prices."

HOUSING STARTS: "December was clearly the outlier due to multifamily starts. So we should focus on the single family number that showed ongoing strength and an upward trend. The momentum is still there for single family starts. With the snow storms in the Northeast, however, it might not surprise if we see a pullback in February.

STEVEN BAFFICO, CHIEF EXECUTIVE OFFICER AT FOUR WOOD CAPITAL PARTNERS IN NEW YORK:

"Any sustained recovery will continue to be underpinned by a recovery in housing, and the building permits suggests a slow, grinding recovery. There will be fits and starts, but the general trend is a positive slope, which bodes well for the market. Nothing here is a market mover, and the PPI numbers are basically static."

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY MELLON, NEW YORK:

"I'm not particularly concerned about the housing numbers. We had some sizable revisions to the prior month, and the extent of the revisions temper our reaction to the headline number. The trend is certainly pointing higher. The bigger focus will be on the Fed minutes this afternoon. At the Fed, the doves are in control. They've made it clear they won't change course unless price pressure picks up and unemployment drops, and as the producer prices data this morning shows, inflation is quite muted."

OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON, D.C.:

"Housing starts are clearly a bit of a disappointment and combined with yesterday's home building sentiment data may reduce some of the recent optimism surrounding a housing market recovery.

"PPI coming in a little cooler than the headline expectation but overall should be a non-event for the markets. On balance, not a lot of direction likely to come from this data. All eyes will be on the Fed minutes later this afternoon."

MARKET REACTION:

BONDS: U.S. bond prices were steady at slightly lower price levels

FOREX: The dollar extended gains versus the yen

GRAPHIC:

U.S. housing starts, building permits: Housing starts fell by 8.5 percent in January to a 890,000-unit annual rate, but building permits rose 1.8 percent to 925,000, the highest level since June 2008. link.reuters.com/gyh24t

(Americas Economics and Markets Desk; +1-646 223-6300)

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