Strong US housing data revives hopes for Q2 growth

In April, new residential construction in the US jumped to the highest level in more than seven years, fuelling hopes that the country's economy will bounce back after disappointing GDP growth data in the first quarter of the year.

Housing starts soared 20.2 per cent to a 1.14 million annualised rate, the most since November 2007, from a 944,000 pace in March, the Commerce Department said in a report published today (May 19th). 

Permits for future home construction jumped 10.1 per cent to a 1.14 million-unit rate, the highest since June 2008.

This beats estimations, with economists polled by Reuters forecasting that groundbreaking would increase to a 1.02 million-unit pace and permits would rise to a 1.06 million-unit rate last month.

Analysts believe the health of the housing sector, along with a solid labour market, will help lift the US economy over the April-June period, following sluggish growth in the first quarter of the year.

"Housing demand is clearly picking up," David Sloan, a senior economist at 4Cast Inc. in New York, told Bloomberg. "Housing should show quite strong momentum over the next few quarters. Permits also suggest solid underlying demand."

Doubts about the future of the US economy remain

The US economy expanded by only 0.2 per cent in the first three months of the year, hampered by a strong dollar and low consumer spending during the harsh winter, sparking fears about the future of the world's largest economy.

Meanwhile, recent figures showing a weakness in consumption, business spending and manufacturing have prompted economists to lower their second-quarter growth estimates, according to Reuters.

Many investors now believe that the Federal Reserve will not raise interest rates before months. US Federal Reserve Chicago president Charles Evans's recently stated that the central bank should hold back from raising short-term interest rates this year. "It likely will not be appropriate to begin raising the fed funds rate until sometime in early 2016," he said.