Home construction suffers steepest drop in 14 years
The Commerce Department reported Tuesday that builders started construction on new homes and apartments at a seasonally adjusted annual rate of 1.84 million units in March, down from 2.23 million units in February.
Analysts had been expecting a decline in housing, but the steepness of the drop, the biggest plunge since January 1991, caught them by surprise.
“This is a bit of a shocker,” said David Seiders, chief economist for the National Association of Home Builders. “But I don’t think this represents a fundamental downshift in the housing market. There were special factors behind it.”
Analysts blamed unusually wet weather in March, which hampered construction activity in some parts of the country, and seasonal adjustment factors that had inflated activity in the previous two months of unseasonably mild weather in many parts of the country.
But many analysts said they believed the housing report could be signaling a peak for the red-hot housing market, with declines expected in the months ahead as higher mortgage rates put a damper on an industry that has posted four straight years of record sales figures for both new and existing homes.
Kathleen Bostjancic, an economist at Merrill Lynch, noted that the drop in housing starts was the fourth indicator for March to show a loss in momentum for the economy. Employment growth, retail sales, manufacturing production and now housing have all shown disappointing results.
Analysts said all of these reports taken together implied the economy was losing some steam under the impact of higher interest rates and the recent surge in energy prices.
The Labor Department said the 0.7 percent increase in its Producer Price Index, designed to track inflation pressures before they reach the consumer, was the largest gain in five months. It was led by a 3.3 percent increase in energy prices, reflecting soaring global oil prices that have pushed the cost of gasoline for U.S. motorists to around $2.28 per gallon.
However, outside of the volatile energy and food sectors, inflation at the wholesale level rose by just 0.1 percent in March.
Wall Street hailed this moderate gain in so-called core inflation. The Dow Jones industrial average finished the day up 56.16 points at 10,127.41, after four straight losing sessions that had shaved 436 points from the Dow.
The 3.3 percent jump in energy costs was the biggest advance since a 5.7 percent rise last October. It reflected a 5.3 percent increase in gasoline prices, the biggest jump since a 12.8 percent rise in gasoline prices last October. Home heating oil prices were up 15.7 percent while residential natural gas prices rose by 2.3 percent.
Food costs were up 0.3 percent in March following a much larger 0.8 percent advance in February. Last month’s increase was driven by a 10.1 percent jump in vegetable prices including big gains for spinach, squash, lettuce, snap beans and tomatoes.
Outside of food and energy, the moderate 0.1 percent advance in core inflation followed a similar 0.1 percent increase in February. Auto prices were down 0.2 percent while computer prices fell by 3.4 percent.
The report on housing construction showed that construction was down in all parts of the country led by a 29.3 percent drop in the Midwest, an 18 percent decline in the South, a 12.7 percent fall in the West and a 3.6 percent decline in the Northeast.
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On the Net:
Labor’s PPI report: http://www.bls.gov/ppi
Commerce’s housing report: http://www.census.gov/newresconst