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Housing starts, industrial output fuel US recovery

February 17, 2010

US housing construction and industrial production posted better-than-expected increases at the start of the year, the government said Wednesday, fueling economic recovery from recession.

New housing projects climbed 2.8 percent to a seasonally adjusted annual rate of 591,000 units in January, the Commerce Department said.

It was the highest level in six months although the housing sector remains far from its peak of activity before a mortgage meltdown plunged the economy into recession about two years ago.

Construction starts on privately owned homes in January were higher than the 580,000 projects expected by most analysts and 21.1 percent above the January 2009 rate of 488,000, the fresh government data showed.

"Overall, we remain optimistic that housing construction will rise sharply through the first half of the year; second half performance depends on Congress extending the tax credit again," said Ian Shepherdson, chief US economist of High Frequency Economics.

A government incentive of an 8,000 dollar tax credit for first-time home buyers was set to expire November 30 last year but was expanded and extended to April 30 to inject new life into the housing market and support the fragile recovery.

The US economy began growing again after a year of contraction in the third quarter of last year.

"Indeed, the real estate industry keeps on its path to moderate improvement, partly thanks to the governmental support," said Thomas Julien, an economist at Natixis.

The Commerce Department also said single-family housing starts increased by 1.5 percent to 484,000 units in January, while the more volatile multi-family segment rose by 9.2 percent to 107,000.

It also revised upwards housing starts in December to 575,000.

Housing starts have flirted with the 600,000 mark since June, but have not surpassed that point.

However, building permits, an indicator of future starts, decreased by 4.9 percent to 621,000 in January from the revised December rate of 653,000, the department said, in line with analyst expectations.

"Going forward, we project that low inventory levels of new homes -- currently at their lowest point since April 1971 -- job growth and a pickup in the household formation rate will result in sustained increases in housing starts/permits this year, and a surge in 2011," said Patrick Newport, US economist at IHS Global Insight.

In another boost to economic recovery hopes, the US Federal Reserve said industrial production jumped higher than expected in January on the back of increased activity in manufacturing, utilities and mining.

The 0.9 percent rise in the first month of the year followed a revised gain of 0.7 percent in December, the central bank said in a report.

It was also higher than the 0.7 percent expected by most analysts and the seventh consecutive rise in output, underscoring the industrial sector's lead in spurring recovery in the world's largest economy.

The January numbers were "strong," said Aaron Smith, a senior economist for Moody's Economy.com.

"The boost from the inventory cycle is beginning to diminish, but support from exports, consumer spending and business investment should pick up the slack and ensure moderate gains in factory output this year," he said.


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