U.S. housing starts rose more than expected in June as construction activity increased broadly, but downward revisions to the prior months’ data pointed to a sector treading water in the second quarter.
Groundbreaking surged 4.8 percent to a seasonally adjusted annual pace of 1.19 million units, the Commerce Department said on Tuesday. Starts for April and May were revised lower, taking some shine off the report. Building permits increased 1.5 percent to a 1.15 million-unit rate last month.
“Builders are building. But we have seemingly hit a lull and permit requests and construction activity are no longer accelerating sharply,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
Economists had forecast housing starts rising to a 1.17 million-unit pace in June. Groundbreaking in the second quarter was a touch higher than the average for the first three months of the year, suggesting residential construction was probably a mild boost to gross domestic product in the second quarter.
Still, the report added to data on employment, industrial production and retail sales in suggesting the economy gained speed in the second quarter after growth sputtered early in the year.
The Atlanta Federal Reserve left its second-quarter GDP growth forecast at a 2.4 percent annualized rate after the housing starts report. The economy grew at a 1.1 percent pace in the January-March period.
The S&P 500 homebuilding index .SPLRCHOME dropped 0.31 percent in line with a broadly weaker U.S. stock market. Shares in D.R. Horton Inc (DHI.N), the nation’s largest homebuilder, fell 0.44 percent and Lennar Corp (LEN.N) slipped 0.22 percent.
The dollar .DXY rose to a four-month high against a basket of currencies and U.S. Treasuries were trading higher.
LABOR, LAND SHORTAGES
The housing market is being supported by a strengthening labor market and demand for rental accommodation, but homebuilding is being constrained by labor and land shortages.
A survey of homebuilders published on Monday showed scattered softness in some markets, with builders citing regulatory challenges as well as shortages of lots and labor.