US May 'housing starts' rise 17.2 per cent

The data on building permits and housing starts in May 2009, released by the US Commerce Department's Census Bureau yesterday shows that building permits rose 4 per cent in May to 518,000 at an annual rate, and housing starts rose 17.2 per cent to 532,000 up from April's figure of 454,000.

''Even as we see important glimmers of light like today's increases, we have not yet seen consistent gains,'' US commerce under secretary for economic affairs Rebecca Blank said.

''The economic environment remains difficult. That's why it's important that we continue advancing an agenda to improve the nation's long-term fiscal health,'' she added.

Housing starts were up 29 per cent in the west, 17 per cent increase in the south, 11 per cent in the Midwest, but only 2 per cent in the Northeast.

This was the largest jump in three months. The increase was much higher than analysts had been expecting, at 485,000 units. However, the rate was still down 45.2 per cent from May 2008.

Building permits rose to 518,000, up from 498,000 (forecasts were for 508,000), while single family homes rose 7.5 per cent to 401,000, the third straight monthly gain.

The rise in building permits is an indication of new potential construction.

These are encouraging signs, analysts opined; this shows the beginning of a rebound in the housing market, but there are still plenty of reasons to expect further weakness.

There are still a huge number of homes for sale out there, they pointed out.

''The market is flooded with people looking to get out of their homes, and the demand is just not there. Right now most people are thinking about foreclosures, unemployment, and the failing auto industry. It is going to take a while before Americans get too excited about purchasing a new home. All of this continues to keep prices low, and the question is: how low will they go before people start coming back into the market,'' one analyst argued.

Added to these numbers, home prices have fallen 30 per cent from July 2006. The median price of existing homes is down by 13.8 per cent to $169,000 in the first quarter of this year.

Also on Tuesday, the Federal Reserve said industrial production fell 1.1 per cent in May from April, which was worse than had been expected.

Among the biggest falling sectors in the industrial production figures was cars and car parts, which declined 7.9 per cent, having fallen 1.2 per cent in April.

Machinery production dropped 3.4 per cent in May following April's 2.5 per cent decline.

Meanwhile, US nominal retail sales rose 0.5 per cent in May. Motor vehicle and parts sales also rose 0.5 per cent in May. Gasoline sales increased 3.6 per cent, partly reflecting the renewed rise in prices, while other sales edged up 0.1 per cent.

''Today's numbers reflect improving consumer confidence. The Recovery Act is making life a little easier for families and businesses, and there are early signs of progress across the country. But May sales are still below their first-quarter average, reminding us of how difficult the economic environment remains,'' commerce secretary Gary Locke said, while releasing the data on retail sales last Thursday.