US housing starts plunge 16% as cold weather blankets country

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U.S. housing starts recorded their biggest drop in almost three years in January, likely weighed down by harsh weather, but the third month of declines in permits pointed to some underlying weakness in the housing market.

The Commerce Department said on Wednesday groundbreaking tumbled 16.0 percent to a seasonally adjusted annual rate of 880,000 units, the lowest level since September. The percentage drop was the largest since February 2011.

Starts for December were revised up to a 1.05 million-unit pace from the previously reported 999,000-unit rate.

Economists polled by Reuters had expected starts to fall to a 950,000-unit rate in January

Starts in the Midwest tumbled a record 67.7 percent, suggesting unseasonably cold weather could have disrupted activity. But at the same time groundbreaking in the Northeast surged to the highest since August 2008.

Frigid temperatures have been blamed for the sharp slowdown in hiring in December and January. They also chilled manufacturing output last month and have been cited for the unexpected drop in retail sales in January.

But not all of the weakness in data can be attributed to the cold weather, amid evidence the economy was already losing momentum towards the end of the fourth quarter.

Groundbreaking for single-family homes, the largest segment of the market, fell 15.9 percent to a 573,000-unit pace in January. That was the lowest level since August 2012. Starts for the volatile multi-family homes segment dropped 16.3 percent to a 307,000-unit rate.

Permits to build homes fell 5.4 percent in January, the largest drop in since June, to a 937,000-unit pace. Permits for single-family homes slipped 1.3 percent. Multifamily sector permits declined 12.1 percent.

Producer prices stay tame

Separately, U.S. producer prices rose for a second straight month in January, pushed up by an increase in the cost of goods, but there was little sign of a broad pick-up in inflation pressures at the factory gate.

The Labor Department said its seasonally adjusted producer price index for final demand increased 0.2 percent last month, the largest increase since October.

Prices received by the nation's farms, factories and refineries had edged up 0.1 percent in December.

The renamed index has been broadened to include services and construction. It was previously known as PPI for finished goods.

PPI now covers about 72 percent of services, which along with other factors will see it likely tracking closely the Consumer Price Index with the passage of time, according to economists.

It expands coverage by including prices for personal consumption, business investment, government spending and exports.

While the revamped series only made its debut on Wednesday, the department's statistics agency, the Bureau of Labor Statistics, has been publishing the new series on an experimental basis since December 2009.

Final demand for goods rose 0.4 percent in January after rising by the same margin in December. Final demand for services increased 0.1 percent after slipping 0.1 percent in December.

In the 12 months through January, producer prices increased 1.2 percent, the largest increase since October, after advancing 1.1 percent in December.

Producer prices excluding volatile food and energy costs rose 0.2 percent after being flat the prior month.

But an even broader gauge of core producer prices - final demand less foods, energy, and trade services - nudged up 0.1 percent after rising 0.3 percent in December.

Accounting for about two-thirds of final demand, economists believe that, over time, this could become the preferred core rate measure for producer prices.

In the 12 months through January, the so-called core PPI for final demand rose 1.3 percent after increasing 1.2 percent in December.

Inflation continues to run very low because of labor market slack, which could see the Federal Reserve keeping its benchmark interest rate near zero for a while even as it dials back its monetary stimulus.

--By Reuters