April Housing Starts Beat Expectations, but Permits Sink

The pace of home construction rose 2.5% in April, beating analysts' expectations, but building permits, which signals future construction plans, sank to the lowest pace in nearly a decade, a government report showed.

A separate report also showed cool weather that boosted demand for energy to heat homes and businesses sent US industrial production up 0.7% in April, the Federal Reserve reported today. That was more than three times higher than the analysts' expectation of a 0.2% increase.

The Commerce Department said housing starts hit a seasonally adjusted annual pace of 1.528 million. That was above the 1.490 million pace analysts were expecting after a first reported 1.518 million rate in March that the government revised down to 1.491 million.

Building permits, which signal future construction plans, dropped in April by 8.9% to a pace of 1.429 million units. That was the slowest pace since June of 1997 when the pace stood at 1.402 million and well below expectations for 1.525 million units.

Even though housing starts increased in April to the highest pace since December 2006, they were down 16% from a year ago and, in a sign the troubled housing market may not be turning the corner as quickly as hoped, building permits were off 28.1% from a year ago.

The government's latest data adds to the pessimistic outlook on Tuesday by the National Association of Home Builders, which reported that home builder sentiment sank in May as lenders made it more difficult for borrowers to qualify for mortgages and order cancellations mounted.

Meanwhile, utility production rose 3.5% last month continuing a pattern of weather-related flip-flops. The 3.5% increase followed a revised 7.5% drop in March and a revised 7.3% increase in February.

The utility volatility fed through to the headline industrial production numbers, with revised figures showing a 0.3% drop in March and a 0.8% increase in February.

Manufacturing production was up 0.5% in April after a revised 0.6% in March. Those two straight monthly increases follwed flat or declining figures earlier in the year.

April manufacturing was strong across the board as home electronics posted a 4.8% increase and autos rose 3.7%.

Mining output showed the only decline last month, down 0.3% after a 0.1% March increase.

April's capacity utilization at 81.6% represented no major shift from where it's been so far in 2007.