Reuters Edge

INSTANT VIEW 3: U.S. May housing starts down 2.1 pct

NEW YORK (Reuters) - The pace of U.S. home construction fell 2.1 percent in May to a lower rate than analysts had expected for the lifeless housing market while building permit activity, a signal of future building plans, increased more than anticipated, a government report showed on Tuesday.

The Commerce Department said housing starts set an annual pace of 1.474 million units in May compared with a 1.506 million unit pace in April. Economists had forecast May housing starts to drop to a 1.480 million unit pace from the 1.528 million rate originally reported for April last month. KEY POINTS: - Building permits, which signal future construction plans, rose in May by 3.0 percent to a pace of 1.501 million units. Economists had been expecting the permits to hit a 1.471 million unit rate. Permits for single-family homes, though, were at their lowest level since July 1997. COMMENTARY: DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW YORK:

“I see it as further confirmation that the housing sector is going to be a drag on the U.S. economy for the rest of this year. There was some doubt about that a few months back, but this data show continued declines in activity. I focus a lot more on the single family sector because that’s where the excess inventory is and these are very low numbers. Permits for single family homes were down once again and that’s another indication that things are going to stay weak.” CARL RICCADONNA, ECONOMIST, DEUTSCHE BANK, NEW YORK:

“The housing mystery continues: how we can get activity down so sharply and not have it be reflected in employment? Some economists are chalking that up to illegal workers not showing up in the books. But we’re not strong subscribers to that story because we saw an uptick in jobs during the boom.

“We could see a bottom in housing sometime this year or early next. But we’d be hesitant to say that things could get better right away.

“The fact that starts are down is good news for the inventory problem. Now builders are also continuing to rein in activity so that should be helpful to this cause.” BETH MALLOY, BOND MARKET ANALYST, BRIEFING.COM, CHICAGO:

“Obviously a little better than expected on the permits and that’s the forward-looking number. The drop-off on the starts and the revision drop-off aren’t going to do much for us.

“I don’t think we’re taking much away from these numbers. Unfortunately pretty much everything weighs on bonds now.” PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK & CO., NEW YORK:

“It’s a May number that comes on the heels of a weak June number yesterday ... this combined with yesterday’s data just confirms that the housing market remains sluggish with no sign of any rebound. If anything, things are going to get worse. (But) yesterday’s data point was more timely and weakness in housing is not a surprise to anybody.” KURT KARL, HEAD OF ECONOMIC RESEARCH AND CONSULTING, SWISS RE, NEW YORK:

“We seem to have have basically bottomed out on the starts, this is close to the average for the first four months of the year, and it is very close to 1.5 million. We are in a situation where rather than subtracting from growth this quarter and next it is going to be basically neutral for the housing market. I don’t see any big changes here, a little bit disappointing on the starts but permits are a bit of an improvement and we seem to be going back and forth on those.” ALEX BEUZELIN, SENIOR MARKET ANALYST, RUESCH INTERNATIONAL, WASHINGTON:

"The housing starts number was not as bad as anticipated and in addition the permits component came out stronger than expected. On balance while the report does not yet make the case we are out of he woods, it does suggest that the inventory drawdown is running its course and points to stabilization in housing. Simply put, it will tend to temper some of the downside risks from the housing sector which reinforces the view that the Fed will not need to cut rates. This supports the U.S. dollar." MARKET REACTION: - U.S. Treasury debt prices show little reaction to U.S. May housing starts data. The benchmark 10-year Treasury note was unchanged to yield 5.136 percent. - U.S. stock futures briefly pare losses following housing starts. - The euro EUR= little changed against the dollar, trading at $1.3403 soon after the report from about $1.3405 shortly prior. The dollar slightly higher against the yen, trading at about 123.45 yen JPY= from about 123.40 yen shortly prior.