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Housing starts post surprising rise in February
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Published: March 18, 2009
WASHINGTON
Housing construction posted a surprisingly large increase in February, strengthening in all parts of the country except the West.
Although the rise in construction was far better than the continued decline that economists had expected, experts viewed the rebound as a temporary gain given all the problems that the housing industry still faces.
The Commerce Department reported yesterday that construction of new homes and apartments rose 22.2 percent in February compared with January, pushing total activity to a seasonally adjusted annual rate of 583,000 units.
Meanwhile, the Labor Department said that wholesale prices rose a slight 0.1 percent in February as a big drop in food costs offset a second monthly rise in energy prices.
After the news, investors reignited Wall Street's rally, snapping up financial and homebuilder stocks among others. The Dow Jones industrial average and other major indexes all finished with gains of more than 2 percent, while the tech-laden Nasdaq composite index rose more than 4 percent.
The protracted housing downturn, rising foreclosures, and a deepening U.S. recession have battered builders and scared off many potential buyers. Analysts say they expect mounting job losses and foreclosures and tight lending standards to continue to suppress home sales.
"Building permits are indicating that starts could improve modestly in coming months, but we believe the reprieve will be short-lived," Anna Torma, an analyst with Soleil Securities Group, wrote in a research note.
Even with the big gain, construction activity remains 47.3 percent below where it was a year ago. The strength in February was led by a sharp increase in apartment construction, which can be volatile from month to month.
All areas of the country reported an increase in February, except the West, which has been hardest hit by the housing slump.
Patrick Newport, the U.S. economist for IHS Global Insight, said that the uptick in construction was driven by better weather in February, particularly in the Northeast, where a severe winter had slowed construction in December and January.
"The numbers are so low that any increase will give you a big percentage increase," Newport said. He said that a surer sign of a turnaround would be a three-month sustained growth in single-family permits.
"We got several months over the past three years where permits increased only to drop the following month," he said.
The 0.1 percent increase in wholesale inflation was much lower than the 0.8 percent rise in January and smaller than the 0.4 percent increase that economists had expected. Compared with a year ago, wholesale prices are down 1.3 percent.
Core inflation, which excludes energy and food, edged up 0.2 percent in February, only slightly higher than the 0.1 percent gain that economists had expected. Core prices had risen 0.4 percent in January.
The world economy remains soft and is getting weaker, making it difficult for companies to raise prices, said Nigel Gault, the chief U.S. economist at IHS Global Insight.
"Inflation is clearly very quiet," he said. "The risks, if we're looking over the rest of the year, are more toward deflation than inflation, but deflation certainly is not here yet."
Companies are continuing to cut costs.
Caterpillar Inc., a maker of heavy equipment, announced plans yesterday to lay off more than 2,400 employees at five plants in Illinois, Indiana and Georgia as it continues to cut costs amid the economic downturn.
Aluminum-maker Alcoa became the latest Dow Jones industrial company to lower its dividend to conserve cash. The company said it is cutting its quarterly dividend 82 percent to 3 cents. It also said it plans to sell stock and debt to help reduce annual costs by more than $2.4 billion.
Nokia, the world's top maker of mobile phones, said it will lay off 1,700 people worldwide to cut costs. The mobile-phone market has been suffering as consumers spend less during the recession.
Today, Fed officials are expected to signal that they will continue to keep a key interest rate at a record low near zero percent for as long as necessary and use other unorthodox means to revive the economy.
The Fed has the leeway to focus on the weak economy because inflation pressures are expected to remain low in the face of widespread layoffs that are depressing wage demands.
The 0.1 percent rise in wholesale inflation in February reflected a 1.3 percent increase in energy prices, which have been rising for two months after having retreated for five successive months.
Gasoline prices rose 8.7 percent in February after a 15 percent increase in January.
Food costs fell for a third successive month, dropping 1.6 percent in February, the biggest one-month decline in three years.
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