U.S. home building to slow, factory activity up

By Joanne Morrison

WASHINGTON (Reuters) - Prospects for U.S. home building look dim but the nation's manufacturing sector is showing some signs of a pickup, data on Wednesday showed.

The Commerce Department reported U.S. home construction unexpectedly rose last month but permits for future building sank to the lowest pace in nearly a decade, signaling extended troubles in the beleaguered housing sector.

On the industrial side, however, output jumped more than expected in April on gains in utilities, auto and high-tech manufacturing output, a separate Federal Reserve report showed.

The data offered a mixed picture of the economy's health, but most economists are still expecting to see tepid growth through the first half of this year as the economy squeezes out of its housing market troubles.

"Make no mistake about it, residential investment will take another big bite out of Q2 GDP," said Ken Mayland, economist and president of ClearView Economics in the Cleveland area.

U.S. Treasury debt prices were largely unchanged on Wednesday after the data on housing starts and industrial production did little to alter expectations on interest rate moves by the Federal Reserve.

However, U.S. stocks opened up higher on investor perceptions that the housing market may be stabilizing.

The dollar rose to a three-month high versus the yen on Wednesday, ahead of Japanese economic growth data largely expected to show some slowing and a central bank meeting expected to keep interest rates among the lowest in the industrialized world.

HOUSING STARTS UP

In April, housing starts hit a seasonally adjusted annual pace of 1.528 million units, a 2.5 percent increase from the prior month. That was above the 1.490 million pace analysts were expecting after a first reported 1.518 million rate in March that the government revised down to 1.491 million.

However, building permits, which signal future construction plans, dropped in April by 8.9 percent to a pace of 1.429 million units. That was the slowest pace since June 1997 when the pace stood at 1.402 million and well below expectations for 1.525 million units.

"This is a half-full, half-empty report because housing starts came in stronger than expected but permits are very weak," said Michael Cheah, portfolio manager at AIG Sunamerica Asset Management in Jersey City, New Jersey.

"My inclination is to think the half empty will win, because much weaker permits suggest home builders are looking to retrench home building and that would lead to cutbacks in housing-related jobs," he added.

Even though housing starts increased in April to the fastest pace since December 2006, they were down 16 percent from a year ago and, in a sign the troubled housing market may not be turning the corner as quickly as hoped, building permits were off 28.1 percent from a year ago.

A separate report on Wednesday showed U.S. mortgage applications fell last week for the first time in four weeks, weighed down by sagging demand for home purchase loans.