Robust US housing data offers hope for second-quarter growth

[WASHINGTON] US housing starts jumped to their highest level in nearly 7-1/2 years in April and permits soared, hopeful signs for an economy that is struggling to regain strong momentum after a dismal first quarter.

The strength in housing is in stark contrast with weakness in consumption, business spending and manufacturing, which have prompted economists to lower their second-quarter growth estimates and raised doubts that the Federal Reserve will raise interest rates before the end of the year.

Groundbreaking surged 20.2 per cent to a seasonally adjusted annual pace of 1.14 million units, the highest since November 2007, the Commerce Department said on Tuesday. The percent increase was the biggest since February 1991.

March's starts were revised up to a 944,000 unit rate instead of the previously reported 926,000 unit pace.

Starts for single-family homes, which accounts for the largest share of the market, hit their highest level since January 2008. Groundbreaking for the volatile multifamily segment also recorded hefty gains last month.

Permits for future home construction jumped 10.1 per cent to a 1.14 million-unit rate, the highest since June 2008. Permits have been above a 1 million-unit pace since July.

Economists polled by Reuters had forecast groundbreaking increasing to a 1.02 million-unit pace and permits rising to a 1.06 million-unit rate last month.

The dollar rose to a session high against the euro on the data, while prices for US Treasuries turned negative.

US stocks index futures were trading higher, also after the European Central Bank suggested it would speed up its bond buying program.

The firming housing market also buoyed profits at Home Depot Inc. The world's largest home improvement chain by sales reported better-than-expected quarterly profit and sales, and raised its full-year sales and profit forecast on Tuesday.

While the robust data probably overstates the health of the housing market, the signs of strength fit in with views that a housing rebound is under way.

There is cautious optimism that housing, which has seen an acceleration in home sales and prices, will combine with a tightening labour market to lift the economy out of the soft patch hit at the start of the year.

The government reported last month that gross domestic product grew at a 0.2 per cent annual pace in the first quarter. But weak March trade and inventories data suggested the economy actually contracted.

The government will publish its revised GDP data next week. Output at the start of the year was held down by a harsh winter, a strong dollar, a port labour dispute and deep energy spending cuts in the first quarter.

Although growth is picking up, retail sales and industrial production data for April suggest the rebound is modest.

In April, groundbreaking rose in three of the four regions, but fell 1.8 per cent in the South, where most of the home building takes place. Single-family homes groundbreaking gained 16.7 per cent. Groundbreaking for the multi-family homes segment increased 27.2 per cent.

Single-family permits increased 3.7 per cent last month. Multi-family permits surged 20.5 per cent.

REUTERS