Housing, inflation data offer measure of optimism

Fresh signs that the economy is stabilizing -- though at very low levels -- emerged yesterday in reports that home construction rose more than expected last month and wholesale prices remained in check.

The building of new homes and apartments jumped 17.2 percent in May to a seasonally adjusted annual rate of 532,000 units from April's record low of 454,000, the Commerce Department said. Building permits, an indicator of future activity, rose 4 percent to an annual rate of 518,000 units, also better than expected.

"We had such a precipitous drop in home construction [in the past year] that any increase is magnified as a rebound when it possibly is not," said Eddie Goode, president of Colonial Homecrafters Ltd., which develops and builds residential properties in the Richmond area.

Reports that show big gains in home construction "could be sending out a false signal," Goode said. "It could make it look like more positive news than it actually is."

Single-family home construction rose 7.5 percent in May, the Commerce Department said.

The big gains in construction were driven by a surge in the highly volatile category of multifamily buildings, which soared 61.7 percent in May after plunging 49.4 percent in April.

"With home prices still as high as they are, it's no surprise that we're seeing more starts for apartments," said Christine Chmura, president and chief economist of Chmura Economics & Analytics in Richmond.

"The construction of apartments makes a contribution to the economy," she said. "Overall, this is good news. We're starting to look upward."

Meanwhile, other reports show:

• The Producer Price Index, which measures wholesale prices, rose by a seasonally adjusted 0.2 percent from April, the Labor Department said. That was below analyst expectations of a 0.6 percent rise.

Despite the increase, wholesale prices fell 5 percent over the past 12 months. That was the largest annual drop in nearly 60 years. Excluding volatile food and energy prices, the core PPI dropped 0.1 percent in May, below analyst forecasts of a 0.1 percent rise.

A 2.9 percent rise in energy prices, including a 13.9 percent jump in the cost of gas, drove the May increase. Food prices, meanwhile, fell 1.6 percent, reversing a similar rise in April.

• Production at the nation's factories, mines and utilities fell 1.1 percent in May, the seventh straight drop, the Federal Reserve said.

Plant shutdowns at Chrysler LLC and General Motors Corp. weighed on industrial production last month and probably will into the summer.

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The latest government reports come after a dip in home-builder confidence reported Monday.

Taken together, along with a recent rise in mortgage rates, they depict an economy recovering very slowly from the depths of the longest recession since the Great Depression.

The uptick in home construction "gives us more evidence that we're bumping along the bottom and we should see the economy return at the end of the last quarter or at the beginning of the year," Chmura said.

Goode said new-home sales likely will remain flat for the remainder of the year.

Any sustained rebound in home construction isn't expected until next spring, economists say. That is partly because of the glut of unsold homes and a record wave of mortgage foreclosures dumping more properties on the market.

"We have sold some homes this spring, but the sales have nothing to do with any incentive packages from the banks or the federal government," Goode said. "Everything we've done is the old-fashioned way: cut prices, raise commission and worked hard to sell the houses we have sold."

Times-Dispatch staff writer Emily C. Dooley and Deputy Business Editor Gregory J. Gilligan contributed to this report.

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