- The Washington Times - Wednesday, June 17, 2009

Housing starts jumped in May from April’s record low, but industrial output continued to plunge last month as the amount of industrial capacity in use fell to a new low.

Wall Street reacted more strongly to the bad news on output than to the good news on housing as the Dow Jones Industrial Average shed 107 points Tuesday after a 187-point drop Monday.

The Dow closed at 8,504.67 Tuesday, a 1.25 percent decline, while the broad-based Standard & Poor’s 500 Index dropped 11.75 points, or 1.27 percent, to finish the day at 911.97. The technology-heavy Nasdaq Composite Index slipped 20.2 points, or 1.11 percent, to close at 1,796.18.

The annual rate of housing starts increased a solid 17.2 percent in May, with all regions of the country reporting a rise, led by a 29 percent jump in the West, the Commerce Department reported Tuesday. Housing starts also increased 17 percent in the South, 11 percent in the Midwest and 2 percent in the Northeast. Nationally, housing starts last month were still 45 percent below year-earlier levels.

Housing permits also were up in all four regions last month.

“Overall, this was a good report,” said Patrick Newport of IHS Global Insight. “The construction market for single-family homes is on the mend.” However, the market for multifamily homes, permits for which fell for an 11th consecutive month, remains in a deep slump, Mr. Newport said, largely because builders cannot find financing for multiunit projects.

A 7.9 percent plunge in motor vehicle and parts output led a 1.1 percent decline in industrial production in May, the Federal Reserve reported Tuesday. Manufacturing output declined 1 percent last month.

Industrial production, which includes output from the nation’s factories, mines and utilities, was 13.4 percent below May 2008. Industrial output last month was 3.2 percent less than it was 10 years ago, according to Federal Reserve data.

Manufacturing output was down 15.3 percent from year-earlier levels.

This was the worst one-year plunge in manufacturing production since the year ending in July 1946 with demobilization after World War II, noted Charles McMillion, chief economist of MBG Information Services. “It also leaves manufacturing output 0.5 percent below levels in May 1998 - the first 11-year loss of manufacturing production since a two-month period ending in 1939,” Mr. McMillion said.

Only 68.3 percent of total industrial capacity was being used last month. Manufacturers used only 65 percent of their capacity in May, leaving a level of idle capacity that was much lower than at any time since recordkeeping began in 1948.

“Such low utilization rates raise the unit costs of current production, suggest significant closure of capacity - including lost jobs - in the months ahead, and strongly undermine the new business investments that are so urgently needed to get the economy moving again,” Mr. McMillion said.

“The abundance of production capacity means pricing power will remain minimal,” said Mark Vitner, senior economist for Wachovia Economics Group.

The absence of pricing power was evident in May’s producer price index, which the Labor Department released Tuesday. Producer prices for finished goods increased 0.2 percent in May. But they were down 5 percent from year-earlier levels. It was the largest 12-month plunge in producer prices since 1949.

Gasoline prices increased 14 percent in May, but they were down 45 percent from May 2008. Excluding food and energy, prices of finished goods fell 0.1 percent in May.

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