Housing Starts Off, but Permits Grow; PPI Tame

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U.S. residential construction fell in January but a jump in permits for future home building to a 4-1/2 year high offered hope the housing market recovery remains on track.

Another report on Wednesday showed wholesale prices rose for the first time in four months in January as rising food costs offset weak gasoline prices. However, sluggish economic growth should keep price pressures muted.

Housing starts dropped 8.5 percent last month to a 890,000-unit annual rate, pulled down by a sharp drop in the volatile multi-family unit category, the Commerce Department said.

But starts for single-family units hit their highest level since July 2008 and permits for future home construction were at a 4-1/2 year high.

PPI Up 0.2% & Housing Starts Down 8.5% in January
PPI Up 0.2% & Housing Starts Down 8.5% in January

"This may be a correction of sorts but nothing to signal any newfound worries in the housing market," said Sean Incremona, an economist at 4CAST in New York.

In a separate report, the Labor Department said its seasonally adjusted producer price index increased 0.2 percent last month after slipping 0.3 percent in December.

The increase in prices received by farms, factories and refineries was below the 0.4 percent gain economists had expected.

U.S. financial markets were little moved by the data.

Details of the wholesale inflation report offered no sign of price pressures

In the 12 month through January, wholesale prices were up 1.4 percent. That followed a 1.3 percent increase in December.

This should give the Federal Reserve some room to maintain its very easy accommodative monetary policy campaign as it tries to stimulate the economy.

The U.S. central bank last year launched an open-ended bond buying program and said it would keep it up until it saw a substantial improvement in the outlook for the labor market. It hopes the purchases will drive down borrowing costs.

The Fed also has committed to hold interest rates near zero until unemployment reaches 6.5 percent, provided inflation does not threaten to push over 2.5 percent.

Wholesale prices excluding volatile food and energy costs edged up 0.2 percent last month after gaining 0.1 percent in December. So-called core PPI had been expected to rise 0.2 percent.

US Retail Gasoline Prices Explained
US Retail Gasoline Prices Explained

In the 12 months through January, core PPI was up 1.8 percent, the smallest increase since February 2011. It had increased 2.0 percent in December.

In January, over three quarters of the rise in overall producer prices could be attributed to a 0.7 percent rise in the cost of food, the Labor Department said. Food prices had declined 0.8 percent in December. Last month's increase reflected a spike in the cost of fresh and dried vegetables.

Gasoline price surprisingly fell 2.1 percent after declining 1.8 percent in December. Gasoline prices at the pump have been rising almost every week this year and the decline in wholesale gasoline prices last month were most likely related to seasonal factors.

Core PPI was lifted by a 2.5 percent jump in the cost of pharmaceutical products. Elsewhere, passenger car prices fell 0.8 percent after rising 0.2 percent the prior month.