- The Washington Times - Wednesday, August 19, 2009

Single-family-housing starts increased for the fifth month in a row in July, providing more evidence that the housing industry, decimated by the recession, is continuing to stabilize. The housing recovery, however, will still likely take several years, analysts said.

As the Federal Reserve prepares its “exit strategy” for withdrawing the massive amounts of money it has injected throughout the economy, the central bank received more good news on the inflation front.

Producer prices fell 0.9 percent in July and plunged a stunning 6.8 percent over the past year, the Labor Department reported Tuesday. It was the steepest 12-month decline since record-keeping began in 1947, indicating that there is little inflationary pressure throughout the production pipeline, analysts said.

Coming on the heels of an 18 percent increase in June, single-family-housing starts rose 1.7 percent in July, reaching an annual rate of 490,000, the highest since October, the Commerce Department reported Tuesday. Building permits for single-family homes jumped 5.8 percent in July, the fourth consecutive monthly increase.

However, housing starts and permits for multi-family buildings plunged to their lowest levels since record-keeping began in 1960, tempering the good news on single-family homes. Tight credit and overbuilding have smashed the construction of multi-family housing.

Including single-family and multi-family units, housing starts slipped 1 percent in July, and permits were down 1.8 percent.

“On balance, the news was good,” said Patrick Newport, U.S. economist for IHS Global Insight. “We should continue to see improving single-family-housing-start numbers nationally and across all regions over the next couple of months.” But Mr. Newport expects a “slow” recovery “lasting two or three years.” He said multi-family starts should begin growing later this year, but also will take years to recover.

The July decline in producer prices for finished goods was broad-based, as food prices fell 1.5 percent, energy prices declined 2.4 percent, and the prices for passenger cars were down 1.7 percent. Producer prices, which are the prices firms pay each other for goods, also fell at earlier stages of the production process.

“Economic weakness should continue to exert downward pressure on wholesale inflation in the months ahead,” said Anika Khan, an economist at Wells Fargo Securities.

The news on producer prices arrived after the Labor Department reported last week that the 2.1 percent decline in consumer prices over the past year was the steepest in nearly 60 years.

“The message from the July producer price report is that inflationary pressures are nowhere to be found,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight. “Indeed, broad-based downward pressure on producer prices right through the production pipeline - in conjunction with persistent downward pressure on wages and salaries and shrinking credit availability - are signals that deflationary risks to the economy have not been completely put to bed.”

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