Economic Watch: Housing Plummets, Producer Prices Edge Higher

Housing starts in the U.S. fell 16% last month while the number of permits issued for new construction declined for the third straight month, according to the U.S. Commerce Department.

The 16% drop in home starts is the biggest decline in almost three years but was likely due to harsh winter weather that stuck much of the country. This pushed the annual rate down to 880,000, the lowest since September and is 2% lower than in January 2013. In contrast, December’s level was revised slightly upward to a 1.05 million pace.

Both single family home and multi-family home construction fell around 16% each.

Also, the number of building permits issued fell 5.4% in January from the month before.

Home starts fell in all parts of the country, except in the Northeast, up nearly 62% from December, while the Midwest saw the biggest drop, falling almost 68%.

“The momentum in the housing market continues to slow but the upward trajectory in both supply and demand remains positive” said Lindsey Piegza, chief economist at the investment firm Sterne Agee. “In other words, the recent pullback in demand has not undermined the housing recovery but slowed the pace of activity, sentiment echoed by yesterday's 10-point decline in the National Association of Homebuilders’ [builder confidence index], which suggested a cooling off of conditions for home purchases and a slowdown in foot traffic.”

She notes that even though housing was the killer of the economy, “it will not be the savior, contributing less than half of what it once did during the boom years.”

Meantime, a separate economic report from the U.S. Labor Department shows prices at the wholesale level in January increased for the second consecutive month.

The 0.2% increase in the Producer Price Index follows a 0.1% gain in December and is up 1.2% in January compared to the same time a year earlier.

The increase was the same for the so-called “core PPI” which excludes volatile food and energy prices.

The index has been broadened to include services and construction. Beforehand, it only tracked the prices of goods.