Cold weather sinks U.S. home building in January

Wed Feb 19, 2014 2:54pm EST
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. housing starts recorded their biggest drop in almost three years in January as harsh weather disrupted activity, but the third month of declines in permits hinted at some weakness in the housing market.

Wednesday's data was the latest suggestion that a brutally cold winter was putting a big dent in the economy. But severe weather cannot be blamed for all the slowdown in growth as the economy appears to have ended 2013 with less momentum.

"The housing sector already slowed down in the fourth quarter and it's not picking up," said Thomas Costerg, a U.S. economist at Standard Chartered Bank in New York. "There is more than the weather at play and the underlying dynamics are not as favorable as people thought they were."

Groundbreaking tumbled 16.0 percent to a seasonally adjusted annual rate of 880,000 units, the lowest level since September, the Commerce Department said. The percentage drop was the largest since February 2011. Economists had expected starts to fall to only a 950,000-unit rate in January.

Until recently, hopes were high for strong growth this year, but it now appears output in the fourth quarter was not as sturdy as initially thought, with downward revisions to November and December retail sales figures. In addition, export growth was weak in December.

The slowdown in growth partly reflects some unwinding of inventories after a massive increase in the second half of 2013.

Last month, groundbreaking for homes in the Midwest tumbled a record 67.7 percent and was down 12.5 percent in the South, indicating that the weather was the culprit. That gave some economists hope for a rebound, but starts could fall again in February as temperatures remained biting during the month.

"To the extent that this plunge in home construction was due mostly to weather issues, we expect a strong rebound in activity in the coming months," said Millan Mulraine, deputy chief economist at TD Securities in New York.   Continued...

Workers build a new house in Alexandria, Virginia February 16, 2012. REUTERS/Kevin Lamarque