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Feb Housing Starts Fall, Retail Sales Up
By Richard Leong
NEW YORK (Reuters) March 16- U.S. homebuilders broke ground
at a slower-than-expected pace in February, suggesting the housing
market may be cooling, but economists said it could heat up again
from the recent drop in mortgage rates.
Tuesday's news of slower home construction was offset by a report
that showed consumers spent a bit more at major retailers last week
than in the prior week.
The Federal Open Market Committee (news - web sites), as expected,
kept its target for the federal funds rate, benchmark for U.S. short-term
rates, at its post 1958-low of 1.00 percent until they see stronger
evidence of jobs growth.
"Although job losses have slowed, new hiring has lagged,"
the Fed policy-setting group said in a statement after its meeting.
The Fed's latest decision offered support to economists who forecast
that the Fed will not raise rates until 2005.
"Don't expect them to move this year," said Keith Hembre,
chief economist at U.S. Bancorp Asset Management.
Blue chip stocks were close to unchanged on Tuesday, while tech
stocks fell after the Fed announcement.
The U.S. Commerce Department (news - web sites) said starts of new
homes fell 4.0 percent to a seasonally adjusted annual rate of 1.855
million in February, well below the 1.930 million pace Wall Street
analysts had projected. January starts were revised upward to a
1.932 million rate from the initially reported 1.903 million pace.
"This is a huge disappointment relative to expectations,"
said Anthony Chan, chief economist at Banc One Investment Advisors.
"Fundamentals are still strong for the housing market. It should
get a second wind from the drop in (mortgage) rates."
According to mortgage finance company Freddie Mac, the average rate
on the popular 30-year mortgage was 5.64 percent in February, the
lowest since July 2003.
Bad weather may also have played a part in the month's decline in
starts. But the drop was limited to the West and South, while completions
of houses increased in the month.
Housing permits, seen as an indicator of builders' confidence, also
dipped in February, falling 1.5 percent to a 1.903 million annual
rate. The figure was in line with Wall Street projections.
By region, starts were up in the Northeast and Midwest but were
down in the larger markets of the South and West.
Starts rose 25.3 percent to a 188,000 pace in the Northeast and
7.1 percent in the Midwest to a 349,000 rate. The Northeast pace
was the fastest since February 1988. In the largest new home market,
the South, starts fell 10.6 percent to a 839,000 annual rate, while
starts in the West slid 7.5 percent to a 479,000 rate.
While February's figures were weaker than expected, the level was
still up 13.1 percent, compared with February 2003.
Although home construction cooled in February, Americans shelled
out more money on a broad array of goods like spring clothes, electronics
and even Christian-themed items spurred by the controversial film
"The Passion of the Christ," according to Redbook, a private
research group.
The pace of sales at major retailers climbed 5.4 percent on a year-over-year
basis for the week ended March 13, up a bit from the previous week's
5.1 percent gain, Redbook said.
But weekly chain store sales are running below February's pace,
raising concerns over the strength of consumer spending, which accounts
for two-thirds of the U.S. economy.
"It shows that economic growth is still fragile," Banc
One's Chan said. (Additional reporting by Jonathan Nicholson in
Washington)
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