Housing starts in the United States soared to a 16-year high according to figures released Tuesday, while a separate report from last week shows manufacturing production is down.

The Commerce Department reported a 5% increase in home starts for December, marking the highest level since June 1986, while figures for the month before were revised upward from a 2.4% increase to a 5.2% gain.
The report also indicated the home building market isn?t ready to slow down anytime soon, with new construction permits increasing 8.2% in December.
"This is where buyers went when they disappeared from the malls during December, leading to a decline in department store sales during the month," said Newport Communications Senior Economist Jim Haughey. "Starts increased in every region, but jumped nearly 20% in the Northeast and almost 10% in the West. While these two regions had the worst construction weather in December they have also had the higher appreciation in home prices recently."
Haughey says despite the very upbeat news, the housing boom is on borrowed time.
"Both credit costs and home appreciation rates appear set to reverse trend and restrain starts later in 2003. Buyers got 30-year mortgage rates at 6.05% in December, the fourth consecutive month under 6.1%; rates have slipped 10 basis points already in January on weak inflation news but almost all forecasts see a turn to rising rates within a few months," he said. "Home appreciation slipped to a 3.2% annual rate in the latest quarter with a small decline in the Great Lakes region. Buyers will still be acting on earlier, higher, appreciation trends for a few months until the new reality begins to discourage move-up buyers."
Haughey notes the impact on freight is positive but not as large as may first appear. That's because the number of houses under construction in December reached a 1.040 million annual rate--only 4% above a year ago and only 1-2% more than last fall.
This latest economic news comes following a government report on Friday that showed manufacturing production declined 0.2% in December due to a 4.7% fall in motor vehicle production. Excluding cars, output rose 0.2%. Overall factory activity was 2.2% above December 2001 and is forecast to expand more than 3% in 2003.
"This is still very weak for this stage of a business recovery cycle. U.S. plants are losing world market share to lower cost competitors in Asia and even in Europe, where the U.S. dollars had been overvalued substantially until recent months," said Haughey. The latest monthly production reports show that Canada had a 0.3% gain, Korea 0.6% and the Euro area and China 1.0%.
The Federal Reserve Board also reported that capacity utilization fell marginally. According to Haughey, it is stuck at about 75%. He said renewed strong growth in equipment production cannot begin until utilization reaches 78%, still at least several quarters away.