Multi-family Starts Lift Total Housing Starts, Recovery in Home Building is Not Here Yet
Housing starts increased 22.2% to an annual rate of 583,000 during February, after posting double digit declines for three consecutive months. However, the bulk of the increase was from multi-family starts which rose 82.3%, while starts of single-family homes moved up only 1.1% to an annual rate of 357,000.
Starts of single-family homes are still down 80.5% from the peak in January 2006. On a regional basis, construction of new homes moved up in the Northeast (+88.6%), Midwest (+58.5%), and the South (+30.2%) but declined 24.6% in the West.
Permit extensions for new homes increased 3.0% in February to an annual rate of 547,000, reflecting gains in the Northeast (+27.6%) and the South (+5.9%) and a decline in the West (-13.6%). Permits issued in the Midwest were unchanged in February.
The surprise strength in housing starts in February, which was largely in the volatile multi-family sector, reduces expectations of a continued recovery of home building because single-family starts are the larger and more stable component of total housing starts. Moreover, the elevated inventory of unsold homes (see chart 2) suggests that a robust recovery in home building will be possible only after there is a substantial reduction in the inventory of unsold new single-family homes.
Core Wholesale Prices Show a Moderating Trend
The Producer Price Index (PPI) for Finished Goods rose only 0.1% in February after a 0.8% gain in January, as the 1.6% drop in food prices offset the 1.3% jump in energy prices. The core PPI, which excludes food and energy, rose 0.2% in February compared with the 0.4% increase in the prior month.
On a year-to-year basis, the finished goods wholesale price index fell 1.3% and the core PPI rose 4.0%. The core PPI posted a cycle high of 4.7% in October 2008.
In February, higher prices for cigarettes, light motor vehicles, alcoholic beverages, household appliances, and apparel led to the 0.2% increase in the core price index.
Further down the pipeline, the intermediate goods price index and the core intermediate price measure fell -0.9% and -0.6%, respectively. The intermediate core goods price index has declined 0.1% from a year ago in February.
