Housing Starts Rebound, Producer Prices Slide in February

By Mike Caggeso
Associate Editor
Money Morning

A pair of crucial economic indices seesawed in February, helping some analysts to see the light at the end of the tunnel.

The rate of housing starts jumped 22% from January to February, with work beginning on an annual rate of 583,000 homes, the Commerce Department reported. Construction on multi-unit houses surged 82%.

The study also showed that housing starts fell 24.6% in the West compared with January 2009, but they gained in the Northeast (88.6%), Midwest (58.5%) and south (30.2%).

Compared with February 2008, housing starts are down 47.3%.

"That is an encouraging sign for the U.S. economy. It is good signal of what is to come," Matt Esteve, foreign exchange trader at Tempus Consulting in Washington, told Reuters. "With the rally in equities we hopefully have seen a bottom for the economy here."

Analysts are optimistic about the stats because housing starts signals some healing in the housing market, which is vital to the overall financial recovery.

More new houses being built means that the banks are returning to lending, consumer spending is returning, and that construction companies are buying more supplies and they hiring more workers.

Increased business spending and people on payroll are vital for consumer demand to return as well, but it will be a while before that happens.

Producer Prices Flat

Also today, the Labor Department reported that producer prices rose 0.1% from January to February, less than expected and much lower than the 0.8% rise from December to January.

"There's just a huge amount of slack now in the U.S. economy and the global economy" that's keeping prices down, Scott Brown, chief economist at Raymond James & Associates Inc., told Bloomberg. "That's going to hang around for some time."

But producer prices are just one of three main stat lines that measure inflation. Another, the price of imports, fell 0.2% in February, the Labor Department reported last week.

Statistics on the last, consumer prices, will be released tomorrow morning.

News and Related Story Links:

• U.S. Department of Commerce: 
  New Residential Construction – February 2009

• Reuters:
  U.S. housing starts surge, inflation slower

• U.S. Department of Labor:
  Producer Price Indexes – February 2009

• Bloomberg:
  U.S. Feb. Producer Prices Rise 0.1%; Core Up 0.2%