US housing starts show an unexpected rise

An unexpected rise in the number of new housebuilding projects in the US last month capped a week of surprisingly benign economic data from the world's largest economy.

The number of so-called "housing starts", building projects that broke ground in April, jumped 8.2 per cent, and there was also a rebound in the number of building permits granted, suggesting construction firms are more optimistic that they will be able to sell new homes in the future.

Economists disagreed over whether the figures showed the worst of the US housing slump – with all the chaos it has caused in global financial markets – might be coming to an end, and bearish forecasters pointed to a new consumer survey showing confidence at a new 28-year low.

But the upside surprise came at the end of a week where inflation data remained more subdued than forecast, and consumer spending topped expectations, raising hopes that the US economy may prove more robust than feared.

Each set of figures was given a health warning by economists. Inflation may have been subdued because of a seasonal adjustment to petrol prices, which may tick up again in coming months, they said.

Consumer spending beat expectations only if you strip out car sales, which are an important component of the economy, they said.

And yesterday, sceptics pointed out that the housing starts increase was all down to volatile apartment building projects, while construction of new single family homes fell for the 12th month in a row to a 17-year low.

Nonetheless, the data "strongly suggests that we are near the bottom," Ken Mayland, chief economist for ClearView Economics, told clients. Hank Paulson, US Treasury secretary, said that it may still take longer to clear a backlog of unsold homes and to stabilise prices in many parts of the country, after years of "sloppy" mortgage lending to people now unable to keep up their payments.

"There were years of excesses," he said. "And this won't be resolved quickly."

The University of Mich-igan consumer confidence survey for May gave a reading of 59.5, the lowest since June 1980, with falling house prices, rising petrol prices and job uncertainty weighing on sentiment.