Housing Starts Fall Amid Winter Storms and Fed Maintains Vow To Keep Rates Low As Economy Rallies

Construction of new homes and apartments fell 5.9% in February to a seasonally adjusted annual rate of 575,000 units, the Commerce Department said Tuesday. That’s slightly higher than the 570,000 that economists were expecting. January activity was revised up to a pace of 622,000 units, the strongest showing in 14 months.

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Homebuilders are trying to emerge from a severe housing downturn. A rebound in housing is seen as critical to sustaining the overall economic recovery.

The February weakness reflected a modest 0.6% drop in single-family construction, which declined to 499,000 units. The more volatile multifamily sector plunged 30.3% to an annual rate of 76,000 units after having surged 18.5% in January.

Activity dropped by 9.6% in the Northeast and 15.5% in the South, two regions hit by snowstorms in February. Building rose by 10.6% in the Midwest and 7.9% in the West. [Read the full article]

Policymakers voted 9-1 to keep the benchmark fed funds rate at a record-low 0%-0.25% range. The Fed also reiterated its longstanding vow to keep the rate low for an “extended period” to make sure the economic recovery stays on track. Most analysts expect the Fed to wait until late this year or early 2011 to raise rates.

“Economic activity has continued to strengthen” since the Fed’s last meeting in January, the central bank said in its post-meeting statement.

Household spending is rising at a “moderate” pace, business spending on equipment and software has risen “significantly” and the labor market is “stabilizing,” it added. In January, the Fed said deterioration in the labor market was abating and business spending appeared to be picking up.

Stocks extended modest gains after the Fed announcement. The Dow rose 0.4%, the Nasdaq 0.7%, the S&P 500 0.8%. The 10-year Treasury yield fell 5 ticks to 3.66%. [Read the full article]

Wholesale inflation dropped 0.6% in February, the Labor Department said Wednesday. That was much larger than the 0.2% decline economists had expected. Excluding food and energy, prices edged up a slight 0.1%, in line with expectations.

The deep recession and weak economic rebound are keeping inflation at bay and giving the Federal Reserve leeway to maintain record-low interest rates in an effort to build momentum from stronger economic growth.

While overall wholesale prices have risen 4.4% over the past 12 months, core inflation, which excludes energy and food, is up a much more subdued 1% over the past year.

Paul Dales, an economist at Capital Economics, says much of the downward pressure on prices stemming from the nation’s steep recession has yet to be felt. For that reason, he says the Fed will be able to keep interest rates low for many more months.

The 0.6% fall in Labor’s producer price index was the biggest decline since a 1.2% drop last July. [Read the full article]

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