Double-Barreled Gains In Housing, Industrial Output

Construction of new homes rose at a faster-than-expected pace last month, hitting its highest level in half a year, the Commerce Department reported Wednesday.

New housing and apartment construction rose by 591,000 units in January, up 2.8 percent. Construction of single-family homes was up 1.5 percent.

The stronger-than-expected numbers come at a time of stepped-up federal support for the housing market, including a tax credit for first-time homebuyers. Building permits — considered a good barometer of housing activity — were down 4.9 percent, but the drop followed several months of unusually steep increases.

Manufacturing Shows Strength

In another sign of economic recovery, the Federal Reserve reported that industrial output rose by 0.9 percent for the month, surpassing expectations of 0.7 percent. Production in manufacturing, mining and utilities all showed gains — the first such collective show of strength since August 2009.

Manufacturing output rose 1 percent, led by a nearly 5 percent gain in auto production.

Manufacturing has helped lead the economic rebound. In the last three months of 2009, nearly two-thirds of growth came from the manufacturing sector. Factories have been churning out goods for businesses that had let their stockpiles dwindle as a way to save cash.

Housing's Ripple Effect

Economists pay close attention to housing because of the ripple effect it can have on the economy and employment. Pat Newport, an economist with HIS Global Insight, tells NPR that the latest numbers show that the industry is slowly crawling out of a three-year slump.

"The housing starts numbers are much more important than just about any other statistic, because when you build a $400,000 home, that $400,000 goes into GDP," Newport said.

"So it's good we're seeing an improvement in housing starts," he said.

Newport believes permit numbers are down because builders are holding on to existing homes and waiting for potential buyers to take advantage of the tax credit that expires in April. Sales are expected to drop off once the credit ends, he says, but houses will start selling and demand for new homes will pick up once the economy starts adding jobs.

December's Numbers Ratcheted Up

Wednesday's housing report also revised activity for December to reflect that builders were starting construction at an annual pace of 575,000 units during the month — much stronger than the 557,000 originally reported.

The National Association of Home Builders said Tuesday that its housing market index rose by 2 points, to 17, in February after having fallen for two consecutive months.

From NPR's Scott Neuman, Danielle Karson, Jim Zarolli and wire reports

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