WASHINGTON -- The U.S. economy kept gathering momentum in May, as builders began more houses and most industries continued expanding production, according to two separate government reports released yesterday.
May housing starts climbed 11% to a seasonally adjusted annual rate of 1.23 million units, with gains in single and multifamily units in all regions of the country, the Commerce Department reported.
Separately, the Federal Reserve reported that industrial production in May increased 0.6%, the fourth consecutive monthly gain, while the operating rate of U.S. mines, manufacturers, and utilities increased 0.3 of a percentage point to 79.0%, also the fourth straight monthly advance.
"These reports are very solid, very encouraging," said Allen Sinai, chief economist of Boston Co. "The continued expansion in housing construction suggests that we have an entrenched recovery."
Mr. Sinai and other economists said the reports are good, with essentially nothing "troubling" about them. But he said they are not strong enough to prompt economists to raise their growth forecasts.
"The reports were good, but didn't change my general perspective," said Mickey Levy, chief economist of CRT Government Securities Ltd.
Mr. Levy and other economists said the reports show that the economy is living up to expectations, but that those expectations are not very high.
Mr. Sinai said he did not change his forecast of 2.1% growth for this year.
Cynthia Latta, senior economist with DRI/McGraw Hill Inc., also said her predictions remains the same, with 2.8% growth in the second quarter and 2.2% growth overall for the year.
The Commerce Department report yesterday said housing starts were up 11% in May, after a revised 17.3% decline in April.
A department official said this was the largest monthly gain in starts in over a year. The report also says housing permits, a measure of future building activity, fell 0.7% to 1.051 million units, following a revised 3.3% decline in April.
While many economists said the date show the housing industry is back on track, David Seiders, chief economist of the National Association of Home Builders, said the report is encouraging but the industry is far from being back on track.
"In a nutshell, the housing market is fairly flat right now, after three pretty good quarters," Mr. Seiders said. "I was relieved when I saw the numbers, but the report is only a partial recovery from the April nose dive."
Mr. Seiders explained that housing starts should be considered in conjunction with permits, which have been declining since February.
In addition, Mr. Seiders said the large April drop in housing starts is not the "aberration" that many economists say it is because the number corresponds with weak March and April sales data. "The April starts number fits with other housing data."
On the production side, the Fed reported that the 0.6% increase in industrial production resulted from gains in most industries, with output from manufacturing firms rising 0.7%, reflecting a 1.2% advance in durable goods and a 0.1% gain in nondurable goods.
The increase in the overall operating rate to 79.0% was also the result of an expanding manufacturing sector, with the operating rate at manufacturing plants rising to 78.1% in May, according to the Fed. These gains were partially offset by declines in mining and utilities, the report said.
Also yesterday, the Commerce Department reported that the U.S. trade deficit on a current account basis narrowed to $5.3 billion in the first quarter from a revised $7.2 billion in the fourth quarter of 1991.