US economists unfazed as housing figures cool

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US homebuilders broke ground on fewer new homes than expected in March, adding to indications that the housing market may be losing momentum.

Housing starts fell 7.8 per cent to 1.96m annualised, below expectations for 2.03m. The fall in single family homes was even swifter, with a 12 per cent decline to a 16-month low.

There was also a fall in building permits, down 5.5 per cent to a 12-month low.

Economists warned against reading too much into the figures, however. The level of housing starts is still only just below the level in December. High Frequency Economics, a group that provides daily economic analysis, said that housing starts might have been artificially high this winter due to warmer weather, leading to fewer disruptions to building. As a result the early spring may be appearing weak in comparison.

“This is still a cyclically elevated level,” said Ian Morris, US economist at HSBC. “Despite some evidence of a cooling for a widening set of housing indicators, the cooling has been very mild so far.”

The figures coincided with the release of the producer prices index, which rose 0.5 per cent. But the more closely watched core index – excluding volatile energy prices – rose just 0.1 per cent, less than expected.

“Pipeline pressures from crude and intermediate goods have been slowing for some time,” said Ian Shepherdson, chief US economist at High Frequency Economics. “Overall, the figures were fine but the [Federal Reserve] cares much more about the labour market than producer prices.”

Producer prices apart from food and energy posted their smallest gain in four months in March. Prices for US government bonds rose and the dollar fell as traders saw the data as bolstering the case for the Federal Reserve to move to the sidelines after a probable final interest rate increase at its forthcoming meeting in May.

Some analysts, however, said the news on tame inflation could be overshadowed by a renewed increase in oil costs. The Labor Department said energy prices, which had plunged 4.7 per cent in February, climbed 1.8 per cent in March. Food prices increased 0.5 per cent after a 2.7 per cent drop.

The rise in energy prices reflected a 9.1 per cent jump in the cost of petrol, the biggest increase since November 2004.

Over the past year, producer prices have risen 3.5 per cent, largely due to surging energy costs. But excluding food and energy, producer prices are up just 1.7 per cent.

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