Published: Wed, Mar. 18, 2009 12:00AM
Modified Wed, Mar. 18, 2009 01:55AM
WASHINGTON -- Housing construction posted a surprisingly large increase in February, bolstered by strength in all parts of the country except the West.
While the surge in construction was far better than the continued decline economists had expected, experts viewed the rebound as a temporary gain given all the problems the housing industry still faces.
The Commerce Department reported Tuesday that construction of new homes and apartments jumped 22.2 percent in February compared with January, pushing total activity to a seasonally adjusted annual rate of 583,000 units.
Meanwhile, the Labor Department said wholesale prices edged up a slight 0.1 percent in February as a big drop in food costs offset rising energy prices.
After the news, investors reignited Wall Street's rally, snapping up financial and homebuilder stocks among others. The Dow Jones industrial average and other major indexes all finished with gains of more than 2 percent, with the tech-laden Nasdaq composite index jumping more than 4 percent.
Analysts expect mounting job losses and foreclosures and tightening lending standards to continue to suppress home sales.
"Building permits are indicating that starts could improve modestly in coming months, but we believe the reprieve will be short-lived," Soleil Securities Group analyst Anna Torma wrote in a research note.
Even with the big increase, construction activity remains 47.3 percent below where it was a year ago. The strength in February was led by a sharp gain in apartment construction, which can be highly volatile from month to month.
The West, which didn't get good news, has been hardest hit by the housing slump.
Patrick Newport, U.S. economist for IHS Global Insight, said the uptick in construction was driven by improving weather in February, particularly in the Northeast, where a severe winter had slowed construction in December and January.
"The numbers are so low that any increase will give you a big percentage increase," Newport said.
He said a surer sign of a turnaround would be a three-month sustained increase in single-family permits.
"We got several months over the past three years where permits increased only to drop the following month," Newport said.
The 0.1 percent increase in wholesale inflation was much lower than the 0.8 percent surge in January and smaller than the 0.4 percent increase economists had expected. Compared with a year ago, wholesale prices are actually down 1.3 percent.
Core inflation, which excludes energy and food, edged up 0.2 percent in February, only slightly higher than the 0.1 percent gain economists had expected. Core prices had risen 0.4 percent in January.
The world economy remains soft and is getting weaker, making it difficult for companies to raise prices, said Nigel Gault, chief U.S. economist at IHS Global Insight.
"Inflation is clearly very quiet," Gault said. "The risks, if we're looking over the rest of the year, are more toward deflation than inflation, but deflation certainly is not here yet."
Companies are continuing to slash costs.
Caterpillar on Tuesday announced plans to lay off more than 2,400 employees at five plants in Illinois, Indiana and Georgia as the heavy equipment maker continues to cut costs amid the global economic downturn.
Alcoa became the latest Dow Jones industrial company to lower its dividend to conserve cash. The aluminum maker said it was cutting its quarterly dividend 82 percent to 3 cents. It also said it plans to sell stock and debt to help reduce annual costs by more than $2.4 billion.
Nokia, the world's top mobile phone maker, said it will lay off 1,700 people worldwide to cut costs. The mobile phone market has been suffering as consumers spend less during the recession.
On Wednesday, Fed officials are expected to signal that they will continue to keep a key interest rate at a record low near zero percent for as long as necessary and use other unorthodox means to jump-start the economy.
The Fed has the leeway to focus on the weak economy because inflation pressures are expected to remain law in the face of widespread layoffs that are depressing wage demands.
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