US housing starts reached a five-month low last month, as homebuyer tax credits expired while wholesale prices stayed subdued. This gave the Federal Reserve plenty of room to keep its ultra-low interest rate policy.
The weak housing market figures from the Commerce Department differed with a separate report released by the Fed that indicated a surge in industrial output, emphasising the economic recovery’s uneven nature.
“It seems clear that the housing market hasn’t recovered very much, except for the amount induced by policy over the last year. That’s the main reason why GDP growth overall remains somewhat sluggish,” said Zach Pandl, an American economist at Nomura Securities International.
The housing data was the latest to suggest that the recovery from the worst economic slump since the 1930s seems to have lost momentum in May. However, economists said a new recession is unlikely.
New home building in the US dropped ten percent to an annual rate of 593,000 units, the lowest since December last year. An increase in mortgage purchase applications in the previous week following five consecutive declines gave hope that the post-tax credit drop-off is only temporary.
Contrary to the housing weakness, industrial output grew 1.2 percent, due in part to a surge in utility production as increasing temperatures prompted US citizens to use air conditioners. Factory output still had a strong 0.9 percent increase.