U.S. housing data signals economic strength; manufacturing weak

Wed Dec 16, 2015 2:39pm EST
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. housing starts in November rebounded from a seven-month low and permits surged to a five-month high, signs of strength in the housing market as the Federal Reserve starts hiking interest rates after years of easy monetary policy.

Other data on Wednesday showed the industrial sector continuing to struggle under the weight of a strong dollar, cutbacks in inventory investment as well as spending cuts by energy firms in response to persistently low oil prices.

Groundbreaking jumped 10.5 percent to a seasonally adjusted annual pace of 1.17 million units last month, the Commerce Department said. Building permits vaulted 11 percent to a 1.29 million-unit rate, the highest since June.

With permits running ahead of starts, home building is likely to remain supported in the months ahead.

The Fed on Wednesday raise its benchmark overnight interest rate by 25 basis points from near zero, the first rate hike in nearly a decade. The U.S. central bank gave an upbeat assessment of the economy and noted that "the housing sector has improved further."

With the Fed making it clear that the tightening cycle is likely to be gradual, the increase in borrowing costs is not expected to derail the housing recovery.

"The interest rate is still low compared to historical standards," said Kevin Young, an analyst at IBISWorld in Los Angeles.

In a separate report, the Fed said industrial production fell 0.6 percent in November as unusually warm weather caused a sharp drop in demand for utilities.   Continued...

Wood for framing new homes is unloaded at a large subdivision in Damascus, Maryland in this file photo from September 15, 2015.  REUTERS/Gary Cameron/Files