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Monday August 31st, 2015 9:55PM

US home construction down for a 3rd month; consumer prices up slightly

By The Associated Press
WASHINGTON (AP) -- U.S. home construction fell for a third month in February, but in a hopeful sign, applications for building permits rose to their highest level in four months. Meanwhile, consumer prices are up slightly.

Builders started work on 907,000 homes at a seasonally adjusted annual rate in February, the Commerce Department said Tuesday. That was down a slight 0.2 percent from January, when construction had fallen 11.2 percent. The declines have been blamed in large part on severe winter weather in much of the country.

Applications for permits to build homes, considered a gauge of future activity, rose a solid 7.7 percent in February to 1.02 million units. Many analysts expect housing sales and construction to show further gains this year, helped by a stronger economy.

The weakness in construction came in the apartment sector. Construction of single-family homes rose 0.3 percent in February to an annual rate of 583,000. But this was offset by a 1.2 percent drop in apartment construction, which fell to a rate of 324,000.

By region of the country, construction activity fell a sharp 37.5 percent in the Northeast, a region hit by frigid weather in February. Construction was also down in the West, dropping 5.5 percent.

But activity in the Midwest, which had fallen sharply in January because of bad weather, rebounded 34.5 percent in February. Activity was up 7.3 percent in the South, the region which accounts for more than half of home construction.

The big rise in permit applications pushed activity to the highest level since October's 1.04 million rate, which had been the fastest pace since June 2008.

Housing, while still a long way from the boom of several years ago, has been recovering over the past two years. Residential construction has grown at double-digit rates over the past two years and contributed about one-third of a percentage point to overall economic growth last year.

Many economists predict that sales of both new and existing homes will rise in 2014, lifted by an improving economy and steady job growth. In 2013, housing construction had its best showing since 2007.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association.

U.S. homebuilders' confidence in the housing market edged slightly higher in March, reflecting in part improved demand for homes as the spring home-selling season began to ramp up.

But builders said they were continuing to struggle with a shortage of skilled workers, rising building materials costs and a shortage of available land to build new homes.

The National Association of Home Builders/Wells Fargo builder sentiment index released Monday rose to 47. That's up from February's reading of 46. Readings below 50 indicate that more builders view sales conditions as poor rather than good.

The overall index had been above 50 from June through January, reflecting a strengthening housing market.

CONSUMER PRICES

Cheaper energy kept U.S. consumer prices in check last month, despite a big rise in the cost of food, the latest sign that inflation is tame.

The consumer price index rose 0.1 percent in February, matching January's increase, the Labor Department said Tuesday. In the past 12 months, prices have risen just 1.1 percent, down from 1.6 percent in January and the smallest yearly gain in five months.

Excluding the volatile food and energy categories, core prices rose 0.1 percent last month and 1.6 percent in the past year.

Energy prices fell 0.5 percent because lower gasoline and electricity costs offset higher prices for natural gas and heating oil. Clothes and used cars were also cheaper last month.

Still, consumers took a hit at the grocery store as food costs rose 0.4 percent, the most in nearly 2 1/2 years. Beef prices jumped 4 percent in February, the most in more than 10 years, as recent droughts have pushed up cattle feed prices. Milk, cheese and other dairy prices also rose.

The big drop in the annual inflation rate to 1.1 percent comes as the Federal Reserve starts a two-day policy meeting, its first under new chair Janet Yellen. Low inflation has enabled the Federal Reserve to pursue extraordinary stimulus programs in an effort to boost economic growth.

The Fed is now trying to unwind some of that stimulus. It is purchasing $65 billion in bonds this month, down from $75 billion in January and $85 billion last year. The bond purchases are aimed at lowering long-term interest rates to encourage more borrowing and spending.

Fed policymakers are expected to announce another $10 billion cut Wednesday.

The slowdown in the annual inflation rate occurred partly because energy prices spiked in February 2013, and that figure has now fallen out of the year-over-year calculation. As a result, economists don't think the rate will fall much further.

Inflation has been held back by sluggish growth and a tough job market, which makes it harder for retailers and other businesses to raise prices.

While shoppers may prefer lower prices, economists warn that super-low inflation can slow economic growth. It encourages consumers to postpone purchases and can also make inflation-adjusted interest rates higher, potentially discouraging borrowing.
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