USA Today
WASHINGTON — 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 may be bottoming.
The Commerce Department says construction of new homes and apartments jumped 17.2% last month to a seasonally adjusted annual rate of 532,000 units. That was better than the 500,000-unit pace economists expected and comes after construction had fallen in April to a record low rate of 454,000 units.
In addition, applications for building permits, seen as a good indicator of future activity, rose 4% in May to an annual rate of 518,000 units.
In a second report Tuesday, the Labor Department said its producer price index, which tracks wholesale prices, increased a seasonally adjusted 0.2% from April. That’s below analysts’ expectations of a 0.6% rise.
The department says wholesale prices fell 5% the past 12 months, largest annual drop in almost 50 years.
But a report from the Federal Reserve said industrial production fell more than expected last month as the recession crimped demand for a wide range of manufactured goods.
The Fed report says production at the nation’s factories, mines and utilities fell 1.1% in May and has declined for seven months. Output also turned out to be a bit weaker in April, a 0.7% decline, than the Fed initially reported.
The 1.1% drop in May was the deepest since a 1.8% plunge in March.
Details from the reports:
• Even with the encouraging news on housing starts, analysts are not looking for a quick rebound in housing, given that the economy is still shedding jobs and home prices are still falling in many areas, making people hesitant to commit to buying a home.
Many economists say home construction likely will stop falling in the current quarter but any sustained rebound isn’t expected to take hold until next spring in part because of the huge overhang of unsold homes and a record wave of mortgage foreclosures, which is dumping more homes on the market.
The 17.2% rise in housing construction for May still left activity 45.2% below a year ago.
The May increase reflected a 7.5% rise in construction of single-family homes, third consecutive increase in this critical segment.
Construction was up in May in all parts of the country, led by a 28.6% surge in the West. Construction rose 16.8% in the South and 11.1% in the Midwest. The Northeast had the smallest gain, 2%.
• In the price report, a 2.9% rise in energy prices, including a 13.9% jump in the cost of gasoline, drove the May increase. Pump prices reached about $2.50 a gallon by the end of last month.
Food prices, meanwhile, fell 1.6%, reversing a similar rise in April. Egg prices plummeted 27%, after jumping 43.7% in April.
The government is scheduled to release consumer price data Wednesday. The consumer price index is expected to increase 0.3% in May after a flat reading in April. The core CPI, which excludes energy and food, is forecast to rise 0.1%.
Both wholesale and consumer prices have fallen from a year ago, which has led some economists to worry about deflation — a sustained and destructive drop in prices. The U.S. has not seen deflation since the Great Depression.
But the Fed has cut a key interest rate to a record low near zero and the administration has taken a number of other extraordinary measures to flood the banking system and the economy with cash.
There are concerns about deflation in other parts of the world, especially Japan. That country underwent a difficult bout of deflation during the 1990s, a period when the world’s second-largest economy struggled to emerge from a real estate and banking crisis.
Price declines also have been registered in other major Asian economies, including China and India.
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