Housing Starts Pick Up in May, But Less Than Forecast

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Keith Srakocic/AP
By Lucia Mutikani

WASHINGTON -- U.S. housing starts rose less than expected in May, likely reflecting labor and material constraints, but the overall trend remained consistent with strength in the housing market.

Though permits for future home construction fell, that followed a surge in April, which hoisted them above the 1 million-unit mark. The pullback last month reflected a drop in the volatile multi-family sector, but permits for single-family construction touched their highest level in five years.

The Commerce Department said Tuesday housing starts rose 6.8 percent to a seasonally adjusted annual rate of 914,000 units. April's starts were revised up to show a 856,000-unit pace instead of the previously reported 853,000 units.

Economists polled by Reuters had expected groundbreaking to rise to a 950,000-unit rate last month.

Builders, who are ramping up construction to meet demand for housing against the backdrop very low inventory, have been complaining about labor shortages and increased material costs.

Sentiment among single-family home builders hit a seven-year high in June, a report showed on Monday, amid optimism over current and future home sales.
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Lean inventories are pushing up home prices, which are in turn boosting consumer confidence and spurring consumption, helping soften the blow on the economy from tighter fiscal policy and slowing global demand.

The Federal Reserve has targeted housing as channel to boost growth, through monthly purchases of $85 billion in government and mortgage-backed securities.

Though residential construction only accounts for about 2.5 percent of gross domestic product, housing has a wider reach on the economy. Analysts estimate that for every single-family home built, at least three jobs lasting for a year are created.

Starts are expected to top a 1 million-unit pace this year.

Last month, groundbreaking for single-family homes, the largest segment of the market, rose 0.3 percent to a 599,000-unit pace. Starts for multi-family homes increased 21.6 percent to a 315,000-unit rate.

Permits to build homes fell 3.1 percent last month to a 974,000-unit pace. Permits for multi-family homes dropped 10 percent to a 352,000-unit rate. Permits for single-family homes rose 1.3 percent to a 622,000-units, the highest since May 2008.

Housing Starts Pick Up in May, But Less Than Forecast
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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