Home Building Rebounds While Wholesale Prices Rise

By JEFF BATER and BRIAN BLACKSTONE The U.S. government Tuesday reported a rebound in home construction and rising wholesale prices last month, the latest in a string of data showing firmer demand amid the recession. Home construction surged by a seasonally adjusted 22% in February from the previous month following seven consecutive declines, as apartment construction soared and single-family home-building edged higher, the Commerce Department said. Construction data are often volatile month to month, but analysts are hoping February's rebound is the beginning of a sustained rise in activity, which would help boost ailing U.S. economic growth this year. The number of building permits issued in February also rose, a promising sign for future construction activity. The report follows a reading Monday that showed manufacturing declines in February tapered from previous months, adding to last week's stock-market rally and a report showing retail sales in February were firmer than expected. Yet some are wary a rebound in home construction will only add to the glut of inventories, particularly new homes at higher prices -- an especially tough sell in this market. Sales of new homes have fallen for six consecutive months through January and are down nearly 50% from January 2008, while inventories have ballooned to a supply of 13.3 months, which is driving prices lower and holding off would-be buyers. Rising layoffs and tighter credit conditions also have hampered a recovery. Other difficulties remain: U.S. gross domestic product is expected to fall 5% or more in the current quarter, following a 6.2% annualized drop in the fourth quarter that was the biggest decline in a quarter century. The current recession, which began in December 2007, will become the longest since the Great Depression if it lasts through next month, as is widely expected. The unemployment rate, now 8.1%, is the highest in 26 years. But U.S. wholesale or "producer" prices rose for a second-straight month in February, the Labor Department said Tuesday, easing worries somewhat about the risk of protracted, economy-wide price declines known as deflation. That should in turn free up Federal Reserve officials, whose two-day policy meeting began Tuesday, to continue pursuing expansionary policies to stabilize financial markets and revive the economy while holding interest rates near zero. Prices for finished goods rose 0.1% from January, though prices are down 1.3% from a year ago, the biggest annual drop since 2002. The price gains were broad-based and seen in categories like apparel, suggesting the overall monthly rise wasn't just driven by a modest rebound in energy prices. Excluding energy and food, core prices rose 0.2% and are up 4% from a year ago. Consumer prices, set for release Wednesday, will give a broader reading on price pressures that U.S. households face. —--Kelly Evans contributed to this article. Write to Jeff Bater at jeff.bater@dowjones.com and Brian Blackstone at brian.blackstone@dowjones.com