Economy Watch: Housing Starts Drop, CPI Edges Up in May

New U.S. housing starts dropped 6.5 percent in May month over month. The Consumer Price Index increased 0.4 percent in May.

New U.S. housing starts were just over an annualized rate of 1 million units in May – 1.001 million units, to be exact – the Census Bureau reported on Tuesday. That’s a 6.5 percent drop compared with the revised April estimate of 1.071 million units, but it’s 9.4 percent above the May 2013 rate.

Single-family housing starts in May were at a rate of 625,000 units, which is 5.9 percent below the April figure. The May rate for units in buildings with five units or more was 366,000; that represents a monthly drop of 8.3 percent, but multi-family starts tend to bounce around from month to month. Compared with last year, the single-family starts rate was up 4.7 percent, and the multi-family starts increased 19.2 percent.

Housing units authorized by building permits in May came in at an annualized rate of 991,000 units, the bureau also reported. That’s 6.4 percent below the revised April rate and 1.9 percent below the May 2013 estimate. Permits are a more forward-looking indicator of residential development activity.

CPI Edges Up in May

The Consumer Price Index (all items for urban consumers) increased 0.4 percent in May, according to the Bureau of Labor Statistics on Tuesday, which was a little more than expected. Over the last 12 months, the all-items index has increased 2.1 percent. That’s still pretty much in line with the Federal Reserve’s target rate for inflation, which is a modest 2 percent.

The monthly increase in the CPI was in fact the largest since Feb. 2013, and was broad-based. The higher cost of shelter, electricity, food, airline fares, and gasoline all contributed to the wider uptick. The food index posted its largest increase since August 2011, with the cost of food at home rising 0.7 percent. Increases in the cost of electricity and gasoline led to a 0.9 percent rise in the energy index.

The CPI without food and energy – the so-called core rate of inflation — rose 0.3 percent in May, its largest increase since Aug. 2011. Prices for shelter, airline fares, medical care, apparel, and new vehicles all increased in May. Household furnishings and used cars and trucks were a little less expensive, however.

Wall Street had another mild up day on Tuesday, with the Dow Jones Industrial Average gaining 27.5 points, or 0.2 percent. The S&P 500 was up 0.2 percent and the Nasdaq advanced 0.4 percent.