Housing construction falls to lowest level in three years

Inflation indicators more upbeat as energy prices fall

September 20, 2006|Associated Press

WASHINGTON -- Housing construction plunged in August, falling to the lowest level in more than three years as the industry showed further signs of a dramatic slowdown.

The Commerce Department reported yesterday that construction of new homes and apartments fell by 6 percent, the third consecutive decline and a much bigger setback than analysts had been forecasting.

The weakness pushed the annual rate for construction down to 1.665 million units, the slowest pace since April 2003.

Meanwhile, wholesale prices edged up a modest 0.1 percent in August, and outside of energy and food, prices actually fell for a second month. That hadn't occurred in more than three years, the Labor Department said.

Analysts said the slowdown in inflation should reassure the Federal Reserve that it can continue to keep interest rates on hold. Fed policy makers meet today for their first discussions since they voted in August to leave rates unchanged after 17 consecutive rate increases.

On Wall Street, the Dow Jones industrial average fell 14.09 points to close at 11,540.91 after investors grew concerned about the economic fallout from a military coup in Thailand.

The Fed is trying to keep inflation under control while at the same time avoiding a recession.

David Seiders, chief economist at the National Association of Home Builders, said the organization's survey of builder sentiment declined in September for the eighth consecutive month and now stands at its lowest point in more than 16 years.

The 0.1 percent rise in the Producer Price Index, which measures inflation pressures before they reach the consumer, was helped by a sharp slowdown in energy prices, which rose by 0.3 percent after having jumped 1.3 percent in July.

Gasoline prices fell by 2.2 percent in August, the biggest drop in seven months .

Core inflation, which excludes energy and food, showed a drop of 0.4 percent after a 0.3 percent decline in July, the first consecutive declines in more than three years.