Housing Starts Post Anemic Rise

Housing starts increased 0.5% in September to a 590,000 seasonally adjusted annual rate, the latest piece of data to show the housing market is slowly stabilizing with help from low prices and government tax credits.

Separately, the Labor Department reported wholesale prices for finished goods fell 0.6% in September, while the "core" measure that excludes volatile food and energy prices fell 0.1%, a sign that despite the tepid economic recovery, producers still have little leeway to raise prices.

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The rise in housing starts was the third in four months, but despite a slow recovery in housing, the report offered few signs of momentum. Many homes have been rushed to completion so that potential buyers can qualify for the $8,000 first-time home buyer tax credit that expires next month. As a result, housing starts that would have occurred later in 2009 and 2010 have been shifted to the early quarters this year.

August housing starts were revised to an annual pace of 587,000 -- 11,000 fewer than originally reported, according to the Commerce Department. And building permits, an indication of future construction activity, fell 1.2% to a seasonally adjusted annual rate of 573,000. Single-family permits fell 3.0% from August.

"Housing is off its lows but doesn't have a whole lot of momentum. That's the story of the economy right now," said David Greenlaw, an economist at Morgan Stanley.

The report on producer prices -- which are down 4.8% from year ago levels -- show that wholesalers still have considerable slack in their operations. Price competition, combined with increases in worker productivity that have kept a lid on labor costs, is giving wholesalers the freedom to pass along price decreases to their customers.

Last week, a U.S. government report showed a rise in consumer prices in September, but the 0.2% jump was smaller than the 0.4% rise registered for August. The slower pace -- along with decreases in producer prices -- suggests that inflation remains subdued. That gives the Federal Reserve continued freedom to leave interest rates low to aid the economic recovery.

Tuesday's PPI data showed a 2.4% fall in energy prices in September after an 8.0% surge the previous month. The September decline in energy prices was led by falling gasoline prices, which declined 5.4%. Falling prices for home-heating oil and residential natural gas also contributed to the September decline.

Food prices were also down. They fell 0.1% in September. Prices of passenger cars rose 1.0% last month, while light truck prices fell 1.4%. Prices of raw materials, known as crude goods, fell 2.1% on the month, while prices for intermediate goods rose 0.2% in September. Core intermediate goods increased 0.9%.

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