Tuesday, June 16, 2009

Housing Construction Up 17.2 Percent In May

--Housing construction up 17.2% --industrial production tumbled 1.1% Construction of new homes jumped in May by the largest amount in three months, providing an encouraging sign that the nation's deep housing recession was beginning to bottom out. But industrial production tumbled a larger-than-expected 1.1 percent — the seventh consecutive monthly drop. Meanwhile, wholesale inflation rose less than expected last month. Construction of new homes and apartments jumped 17.2 percent last month to a seasonally adjusted annual rate of 532,000 units, the Commerce Department said Tuesday. That topped the 500,000-unit pace that economists had expected and came after construction had fallen in April to a record low of 454,000 units. In another encouraging sign, applications for building permits, seen as a good indicator of future activity, rose by 4 percent in May to an annual rate of 518,000 units. The better-than-expected rebound in construction was the latest sign that the prolonged slump in housing is coming to an end, which would be good news for the broader economy. The 17.2 percent rise in housing construction for May still left activity 45.2 percent below where it was a year ago. The May increase reflected a 7.5 percent rise in construction of single-family homes, the third consecutive increase in this critical segment of the market. Construction of multifamily units was up 61.7 percent in May to an annual rate of 131,000 units. Industrial Production Tumbles But even as housing activity picked up, industrial production fell 1.1 percent in May as the recession crimped demand for a wide range of manufactured goods including cars, machinery and household appliances. The Federal Reserve's report on Tuesday showed production at the nation's factories, mines and utilities has fallen for seven straight months. Output also turned out to be a bit weaker — a 0.7 percent decline- in April than the Fed initially reported. Industrial companies idled more of their plants and equipment. The overall operating rate fell to 68.3 percent in May, a record low dating to 1967. The previous low was set in April, when operating capacity dropped to a revised reading of 69, slightly weaker than first reported. Production in the manufacturing sector fell 1 percent in May. That followed a revised drop of 0.6 percent in April, double what the Fed initially estimated. Output in mining fell 2.1 percent in May, after decreasing 3.2 percent the previous month. Production at utilities fell 1.4 percent in May, erasing a 0.7 percent increase in April. Production of autos and parts plunged 7.9 percent, following a 1.2 percent decline in April. Machinery production dropped 3.4 percent, after a 2.5 percent decline. Wholesale Inflation Up Modestly Meanwhile, a separate report showed that wholesale prices rose less than expected in May as a large jump in the price of gasoline offset a drop in food costs. The Labor Department said Tuesday that the Producer Price Index increased by a seasonally adjusted 0.2 percent from April. That's below analysts' expectations of a 0.6 percent rise. Despite the increase, wholesale prices fell 5 percent in the past 12 months. That's the largest annual drop in almost 60 years. Excluding volatile food and energy prices, the core PPI dropped 0.1 percent in May, also below analysts' forecasts of a 0.1 percent rise. Falling prices can raise fears about deflation, a destabilizing period of extended declines. But most economists believe that efforts by the Federal Reserve to combat the recession will prevent that from happening. A 2.9 percent rise in energy prices, including a 13.9 percent jump in the cost of gasoline, drove the May increase. Pump prices reached about $2.50 a gallon by the end of last month.

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