Prospects for US home building look dim but the nation's manufacturing sector is showing some signs of a pickup, data on Wednesday showed. The Commerce Department reported US home construction unexpectedly rose last month but permits for future building sank to the lowest pace in nearly a decade, signalling extended troubles in the beleaguered housing sector.
On the industrial side, however, output jumped more than expected in April on gains in utilities, auto and high-tech manufacturing output, a separate Federal Reserve report showed. The data offered a mixed picture of the economy's health, but most economists are still expecting to see tepid growth through the first half of this year as the economy squeezes out of its housing market troubles.
"Make no mistake about it, residential investment will take another big bite out of Q2 GDP," said Ken Mayland, economist and president of ClearView Economics in the Cleveland area.
In April, housing starts hit a seasonally adjusted annual pace of 1.528 million units, a 2.5 percent increase from the prior month. That was above the 1.490 million pace analysts were expecting after a first reported 1.518 million rate in March that the government revised down to 1.491 million.
However, building permits, which signal future construction plans, dropped in April by 8.9 percent to a pace of 1.429 million units. That was the slowest pace since June 1997 when the pace stood at 1.402 million and well below expectations for 1.525 million units.
"This is a half-full, half-empty report because housing starts came in stronger than expected but permits are very weak," said Michael Cheah, portfolio manager at AIG Sunamerica Asset Management in Jersey City, New Jersey.
Even though housing starts increased in April to the fastest pace since December 2006, they were down 16 percent from a year ago and, in a sign the troubled housing market may not be turning the corner as quickly as hoped, building permits were off 28.1 percent from a year ago.
A separate report on Wednesday showed US mortgage applications fell last week for the first time in four weeks, weighed down by sagging demand for home purchase loans.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, for the week ended May 11 dipped 0.8 percent. These latest reports lent credence to the pessimistic outlook on Tuesday by the National Association of Home Builders, which reported that home builder sentiment sank in May as lenders made it more difficult for borrowers to qualify for mortgages and order cancellations mounted.
Capacity utilisation - a measure of how close to full capacity factories, mines and utilities are running - was a slightly greater-than-expected 81.6 percent as manufacturing capacity use picked up. It was above the 1972-2006 average of 81 percent, the Fed said.