US housing construction surprises

U.S. housing construction posted a surprisingly large increase in February, bolstered by strength in all parts of the country except the West.

While the surge in construction was far better than the continued decline economists had expected, experts viewed the rebound as a temporary gain given all the problems the housing industry still faces.

The Commerce Department reported yesterday that construction of new homes and apartments jumped 22.2 per cent in February compared with January, pushing total activity to a seasonally adjusted annual rate of 583,000 units.

Meanwhile, the U.S. Labour Department said wholesale prices edged up a slight 0.1 per cent in February as a big drop in food costs offset a second monthly increase in energy prices.

After the news, investors reignited Wall Street's rally, snapping up financial and home builder stocks among others. The Dow Jones industrial average and other major indexes all finished with gains of more than 2 per cent, with the tech-laden Nasdaq composite index jumping more than 4 per cent.

The protracted housing downturn, rising foreclosures and a deepening U.S. recession have battered home builders and scared off many potential buyers. Analysts expect mounting job losses and foreclosures and tightening 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," Soleil Securities Group analyst Anna Torma wrote in a research note.

Even with the big increase, construction activity remains 47.3 per cent below where it was a year ago. The strength in February was led by a sharp gain in apartment construction, which can be highly 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, U.S. economist for IHS Global Insight, said the uptick in construction was driven by improving 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," Mr. Newport said.


He said a surer sign of a turnaround would be a three-month sustained increase in single-family permits.

"We got several months over the past three years where permits increased only to drop the following month," Mr. Newport said.

The 0.1-per-cent increase in wholesale inflation was much lower than the 0.8 per cent surge in January and smaller than the 0.4 per cent increase economists had expected. Compared with a year ago, wholesale prices are actually down 1.3 per cent.

Core inflation, which excludes energy and food, edged up 0.2 per cent in February, only slightly higher than the 0.1-per-cent gain economists had expected. Core prices had risen 0.4 per cent in January.

(prepared by Martin Crutsinger/Globe & Mail)