U.S. Economy: Housing Starts Climb, Inflation Gauge Unchanged

Dec. 16 (Bloomberg) -- Housing starts in the U.S. rose in November and a gauge of consumer prices was unchanged, supporting forecasts for an economic recovery that will generate little inflation.

Builders broke ground on 574,000 homes at an annual rate in November, an 8.9 percent increase from the prior month, the Commerce Department said in Washington. A Labor Department report showed consumer prices excluding food and energy were unchanged, compared with a median forecast for a 0.1 percent increase in a Bloomberg News survey of 79 economists.

Permits for future construction climbed to the highest level in a year, signaling builders expect sales to rise as homebuyers are lured by lower prices, tax credits and mortgage rates near record lows. Federal Reserve policy makers meeting today may indicate the recovery is gaining strength while repeating a pledge to keep the benchmark interest rate almost at zero for an “extended period” to push down an unemployment rate that’s forecast to exceed 10 percent through June.

“The housing market is stabilizing at very low levels, which of course is better than plunging,” said Harm Bandholz, an economist at UniCredit Research in New York who correctly forecast no change in the so-called core consumer-price index. “The Fed will be a little more upbeat about the economy, but core inflation will continue to trend lower. The Fed does not want mortgage rates to rise right now or in the near future.”

The Standard & Poor’s 500 Index was up 0.7 percent to 1,115.11 at 11:10 a.m. in New York. The S&P’s Supercomposite Homebuilding Index rose 3 percent to 237.51.

Projected Gain

Housing starts matched the median estimate of 78 economists surveyed by Bloomberg News and followed a 10 percent drop the prior month. The government revised October’s reading down to a 527,000 pace from the 529,000 previously estimated.

Building permits increased to a 584,000 pace, the highest level since November 2008, from 551,000 the prior month. Permits were forecast to rise to 570,000.

Toll Brothers Inc., the largest U.S. luxury homebuilder which reported a 42 percent surge in fiscal fourth-quarter orders, is anticipating a gradual recovery in the market, said Chief Executive Officer Robert Toll during a Bloomberg Television interview on Dec. 11.

“There is a pretty good reservoir of pent-up demand,” he said in New York City. “We don’t know how fast we’re coming back, but we do know we’re coming back.”

Weather Factor

Favorable weather may have played a role in boosting construction last month, said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. November was the third warmest in 115 years of record keeping, according to the National Climatic Data Center, giving builders an opportunity to keep working. By contrast, October was the wettest in the past century.

President Barack Obama’s extension last month of a first- time homebuyers’ tax credit of as much as $8,000 until April 30 will also give builders reason to speed up projects over the next couple of months.

Any sustained recovery will require gains in employment, economists said. The economy has lost 7.2 million jobs since the recession began, and economists surveyed by Bloomberg early this month forecast joblessness will average 10 percent next year.

Fed Chairman Ben S. Bernanke, in comments Dec. 7 at the Economic Club of Washington, listed a weak labor market and tight credit as among the “formidable headwinds” that he said would probably “keep the pace of expansion moderate.” The Fed’s decision on interest rates is due today at about 2:15 p.m. New York time.

Shelter, Clothing

The so-called core consumer price index that excludes food and energy showed no increase last month for the first time this year, restrained by a drop in rents and cheaper clothing.

Overall, consumer prices rose 0.4 percent, matching economists’ forecasts and up from a 0.3 percent gain in October, today’s Labor Department report showed.

Compared with a year earlier, consumer prices were up 1.8 percent. Core prices rose 1.7 percent from November 2008, matching the year-over-year gain in October.

After rising 4.1 percent in November, fuel costs have retreated so far this month, and comments from companies such as Best Buy Co. indicate unemployment close to a 26-year high is prompting retailers to discount merchandise.

Computer Discounts

Best Buy, the largest electronics retailer, said yesterday that its fourth-quarter gross profit rate will be lower than anticipated because of discounted laptop computers and $299.99 flat-screen TVs to attract customers.

Construction of single-family houses, which accounted for 84 percent of the industry last month, increased 2.1 percent to a 482,000 rate. Work on multifamily homes, such as townhouses and apartment buildings, jumped 67 percent to an annual rate of 92,000.

All four regions showed a gain in starts in November, led by a 16 percent increase in the Northeast.

A separate Commerce Department report today showed the U.S. current-account deficit widened to $108 billion in the third quarter from a seven-year low of $98 billion in the previous three months, reflecting a larger shortfall in trade as imports rose faster than exports.