Housing Starts Unexpectedly Rise,
But Building Permits Fall 8.9%

Home construction unexpectedly rose during April, making a surprise increase despite bloated inventories and tighter credit for subprime borrowers, but building permits took their sharpest fall in 17 years.

Meanwhile, U.S. industrial production rose more than expected during April as motor vehicle and utilities output grew at a fair clip for the month.

Housing starts increased 2.5% to a seasonally adjusted 1.528 million annual rate, after rising by 0.3% in March, the Commerce Department said Wednesday. Originally, March starts were seen increasing by 0.8% to 1.518 million.

The 2.5% increase in April construction surprised analysts. The median estimate of 24 economists surveyed by Dow Jones Newswires was a 2.2% drop to a 1.485 million annual rate. Despite the unexpected increase, housing starts, year over year, were 16% lower than the level in April 2006.

U.S. homebuilders are losing optimism, a new study suggests. The National Association of Home Builders' index for sales of new, single-family homes fell to 30 in May from 33 in April. The gauge is based on a survey of builders asked about sales prospects. The erosion in the outlook for the housing market was attributed to the crisis in its subprime sector.

A Federal Reserve survey of banks released this week found more than half of subprime lenders reported tightening standards on such loans.

Economists have predicted a pullback in subprime lending volume might cost home sales in the future. Demand for new homes was down 24% in March from a year prior. At the end of the month, an estimated 545,000 homes were for sale -- a 7.8 months' supply at the sales rate. Builders are showing restraint until demand picks up and excess inventories clear, according to analysts.

Building permits last month fell, down by 8.9% to a 1.429 million annual rate, the Commerce Department report said. It marked the biggest decline since 24% in February 1990. Economists expected a 2.4% decline to 1.526 million. Permits increased a revised 1.8% in March to 1.569 million; originally, permits were seen up 0.8% to 1.544 million.

April single-family housing starts increased 1.6% to 1.225 million. Construction of housing with two or more units rose 6.3% to 303,000; within that category, groundbreakings of homes with five or more units -- or multifamily -- were 6.4% higher.

Regionally, housing starts increased by 31% in the Northeast and 7.8% in the West. Construction decreased by 14% in the Midwest and 0.1% in the South.

Nationwide, an estimated 139,300 houses were actually started in April, based on unseasonally adjusted figures. An estimated 125,600 building permits were issued last month, also based on unadjusted figures.

Industrial Output Jumps

Industrial production rose 0.7%, the Federal Reserve said Wednesday. Output decreased 0.3% in March, revised down from a previously estimated 0.2% decrease. Capacity utilization rose to 81.6%. March capacity use was 81.2%, revised down from 81.4%. The 1972-2005 average remained 81.0%.

Economists expected industrial production to rise 0.3% in April, with a capacity utilization rate of 81.5% for the month.

Over the 12 months ending in April, industrial production advanced 1.9%, while capacity use was up 2.3% from a year earlier. Manufacturing production increased 0.5% in April, after rising 0.6% in March and remaining flat in February. Manufacturing capacity utilization rose to 80.2% from 80.0%.

Output in the mining industry fell 0.3% in April after rising 0.1% the prior month. Mining capacity was 90.3% in April, down from 90.6% in March.

Utilities production jumped 3.5% last month, as temperatures fell below seasonal norms, the Fed said. It fell 7.5% in March on unseasonably warm weather. Utilities capacity use also rose to 85.7% last month from 82.8% in March.

The 0.5% increase in manufacturing output included a 1.1% rise in the production of durable goods. Nondurable goods manufacturing fell 0.2%. Manufacturing of motor vehicles and parts rose 3.3% in April. The Fed said the production of automobiles and light trucks increased to a seasonally adjusted annual rate of 10.82 million from 10.29 million in March.

Excluding autos, U.S. industrial production was 0.6% higher in April after falling 0.3% the previous month. Machinery production fell 0.3% in April after a 1.9% increase in March. Business equipment rose 0.9% after rising 0.9% in March.

The technology industry's goods output advanced last month. Production in that sector rose 2.6% in April, after rising 1.8% the month before. Within this category, production of semiconductors and related parts increased 3.8% last month.

The Fed's industrial production data don't include services sectors, which make up most of the U.S. economy.

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