US housing, jobs data leave mixed economic picture

US government data released on Thursday showed housing starts in June jumped to the fastest pace since January, while new weekly claims for jobless benefits fell but were still at high levels.

The Commerce Department said housing starts leaped 3.7 per cent to a seasonally adjusted 1.803 million annual rate in June as home buyers scurried to take advantage of extremely low mortgage interest rates. The pace was the strongest since January's 1.828 million rate.

"The insistently strong spot in the economy remains bright. There's no weakening there. People are still buying homes and developers building them," said Mark Zandi, chief economist with Economy.com in West Chester, Pennsylvania.

But even as the housing starts number boosted hopes the US economy could shift into higher gear in the second half of the year, as many analysts expect, the jobless claims report underscored the lackluster nature of the economy and its 6.4 per cent unemployment rate.

The Labour Department said new claims for unemployment benefits fell more than had been expected, to 412,000 in the week ended July 12 from a revised 441,000 in the prior week. But the report marked the 22nd straight week claims have been above the key 400,000 level.

In a separate report on Thursday, the Federal Reserve Bank of Philadelphia's closely watched monthly survey of mid-Atlantic manufacturing surprised analysts by posting a stronger-than-expected reading of 8.3 in July, up from four in June.

The upbeat housing data and fall in jobless claims hit US Treasuries prices, pushing yields on benchmark 10-year notes above the four per cent barrier to test four-month highs. Yields fell back in the afternoon following the Philadelphia Fed report, which though stronger than expected, was not nearly as strong as many in the market had bet.

US stock markets ignored the data and focused on corporate earnings instead. The Dow Jones industrial average was down about 0.6 per cent and the Nasdaq composite lost almost three per cent in the early afternoon.

While the decline in jobless claims was welcomed by analysts, they cautioned against taking the report too much to heart. Seasonal shutdowns of auto factories often skew the weekly data in July, making it more difficult to interpret.

"The claims number is from the early July blackout period when the data are not to be trusted," said Sherry Cooper, chief economist at BMO Nesbitt Burns.

Although of little comfort to those lining up for unemployment benefits, the panel considered the arbiter of US business cycles declared the recession that started in March 2001 lasted only until November 2001. The National Bureau of Economic Research's Business Cycle Dating Committee said the eight-month length of the downturn made it shorter than average.

The housing report surprised analysts by its strength. Permits for new home construction rose to a 1.817 million annual rate, the fastest since December 2002. Permits for single-family dwellings posted a record annual pace of 1.421 million.

However, mortgage rates have begun creeping back up from their June lows, a trend that should eventually begin to put a damper on the market.

Joel Naroff, chief economist with Naroff Economic Advisors in Holland, Pennsylvania, said the short-term effect could actually be to lure more homebuyers.

"Given the way the market typically works, a jump in rates will only cause a greater frenzy as people fear they could be priced out of the market," he said.