Weak home building a drag on economic recovery

WASHINGTON — The budding economic recovery is getting little help from the home building industry, which normally creates jobs and boosts growth as a recession ends.

Construction of homes unexpectedly plunged last month to its lowest point since April, the Commerce Department said Wednesday. The weak figures show that builders still lack confidence that buyers can soak up the glut of unsold homes already on the market — a supply magnified by a record number of home foreclosures.

The figures also illustrate how much the fledgling recovery depends on government support. Builders broke ground on fewer homes in part because of uncertainty in October about whether Congress would extend a tax credit for homebuyers. Earlier this month, lawmakers renewed the credit and extended it to more buyers.

Even with government aid, the weakness of the housing sector is dragging on the recovery.

"It will take a while before residential construction begins to contribute meaningfully to growth," Jennifer Lee, an economist at BMO Capital Markets, wrote in a research note.

The sluggish recovery is also holding down inflation. While consumer prices edged up faster than expected in October, they remain lower than they were a year ago. And inflation is expected to remain subdued.

The Labor Department said consumer prices rose 0.3 percent in October, a bit more than the 0.2 percent economists had expected. Core inflation, which excludes energy and food, rose 0.2 percent, compared with analysts' expectation for a 0.1 percent rise.

The higher figure was driven by another increase in energy prices and the biggest jump in new car prices in 28 years. The price of used cars and trucks also rose by the most since September 1980.

Analysts said the jump in used car prices partially reflected the government's "Cash for Clunkers" rebate program, which has reduced the stockpile of used vehicles since cars which qualified for that program were junked and therefore not available for resale.

The advance in both new and used car prices accounted for 90 percent of the increase in core inflation last month, government analysts said.

On Wall Street, stocks edged down following the unexpected drop in home construction and disappointing forecasts from technology companies. The modest drop came a day after major stock indicators closed at 13-month highs, including the Dow Jones industrial average, which has risen nine of the past 10 days. The Dow lost about 43 points in midday trading Wednesday, and broader indexes also dipped.