Home Building Explodes, Inflation Under Control
Trucking companies that haul building materials have encouraging news
Trucking companies that haul building materials have encouraging news.
New home starts rocketed in May, posting an 11.6 percent gain, the largest increase in almost seven years.
The U.S. Commerce Department also reported Tuesday that home starts for single family units posted a 9.6 percent increase, the biggest jump since July 1995, bringing total new home starts to 1.73 million units annually, up from a downwardly revised 1.55 million rate in April.
Good construction weather, increasing consumer confidence, rising employment, another dip in mortgage rates and falling construction material prices all contributed to the large gain, says Newport Senior Economist Jim Haughey.
“The May level is not sustainable even in an improving economy; starts will likely settle back to about the May building permit level of 1.674 million,” he says.
Haughey notes that improved housing starts are seen very early in the business cycle.
“Strong gains in housing at the beginning of an economic recovery usually means similar strong gains in manufacturing a few months later,” he says.
Also during May, building permits, a barometer of future homebuilding activity, increased 2.6%.
The biggest increase in home starts was seen in the Midwest and Northeast, where they increased 24% and 22.4%, respectively, while the West reported a 10% increase and the South posted a 6% gain, though it accounts for the biggest number of total new home starts.
Meantime, in a separate report, the Labor Department reported consumer prices were unchanged in May. However, the so-called “core rate,” which measures inflation, posted a 0.2% drop, down slightly from a 0.3% showing in April.
Helping to keep a lid on consumer prices was a 0.7% drop in energy prices, which increased 4.5% in April. Also food prices fell 0.2% while clothing prices declined 0.6%
Many analysts believe this new report on inflation will lead the Federal Reserve to keep interest rates unchanged when they meet next week.
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