U.S. homebuilding jumped in February likely as unseasonably warm weather boosted the construction of single-family houses to near a 9-1/2-year high, suggesting the economy remained on solid ground despite an apparent slowdown in the first quarter.
Other data on Thursday showed a drop in the number of Americans filing new applications for unemployment benefits last week, pointing to a further tightening in the labor market.
The fairly upbeat data came a day after the Federal Reserve raised interest rates for the third time since the 2008 financial crisis. Fed Chair Janet Yellen told reporters that the U.S. central bank was sending a message that "we have confidence in the robustness of the economy and its resilience to shocks."
Housing starts increased 3.0 % to a seasonally adjusted annual rate of 1.29 million units last month, the Commerce Department said. Economists had forecast groundbreaking activity rising to a rate of 1.26 million units.
Home building was up 6.2 % compared to February 2016. Single-family homebuilding, which accounts for the largest share of the residential housing market, surged 6.5 % to a pace of 872,000 units last month, the highest level since October 2007. Single-family starts rose in the West, Northeast, and Midwest, but fell in the South.
Starts for the volatile multi-family housing segment fell 3.7 % to a pace of 416,000 units.
A robust labor market is supporting the housing market, helping it to buck weakness in other parts of the economy.
Tightening labor market
In a separate report, the Labor Department said initial claims for state unemployment benefits dropped 2,000 to a seasonally adjusted 241,000 for the week ended March 11.
It was the 106th straight week that claims remained below 300,000, a threshold associated with a healthy labor market. That is the longest stretch since 1970 when the labor market was much smaller. The labor market is near full employment.
Job growth has averaged 209,000 per month over the past three months and the unemployment rate is at 4.7 %, close to the nine-year low of 4.6 % hit last November.
Prices of U.S. Treasuries were lower on Thursday while U.S. stock index futures were trading higher. The dollar was weaker against a basket of currencies.
The Fed on Wednesday raised its overnight benchmark interest rate by 25 basis points to a range of 0.75 % to 1.00 % and forecast two more rate hikes this year.
Labor market strength is in stark contrast with a recent softening in consumer, construction and business spending. The Atlanta Fed is forecasting gross domestic product increasing at a 0.9 % annualized rate in the first quarter. The economy grew at a 1.9 % rate in the fourth quarter.
In February, permits for future home construction fell 6.2 % to a rate of 1.21 million units. But single-family permits increased 3.1 % to a pace of 832,000 units.
Building permits for multi-family units dropped 21.6 % to a rate of 381,000 units. Single-family permits are likely to remain higher. A survey on Wednesday showed homebuilders' confidence jumped in March to its highest level since June 2005.
The surge in confidence is, however, unlikely to translate into a homebuilding boom as builders continued to complain about rising material prices, higher mortgage rates, and shortages of lots and labor.