(Recasts with industrial output data, adds analyst comments,
* Factory production increases 1.0 percent in April
* Housing starts fall 2.6 percent; permits drop 2.5 percent
* Single-family starts rise 0.4 percent
* Multi-family starts tumble 9.2 percent
By Lucia Mutikani
WASHINGTON, May 16 U.S. manufacturing production
recorded its biggest increase in more than three years in April,
bolstering the view that economic growth picked up early in the
second quarter despite a surprise decline in homebuilding.
The broad strength in factory output reported by the Federal
Reserve on Tuesday added to labor market data in suggesting the
growth slowdown in the first quarter was temporary. That may
allow the U.S. central bank to raise interest rates next month.
"The sharp increase in industrial activity is a clear sign
that the first-quarter sluggishness is behind us. It comes at
the right time as home construction seems to have hit a lull,"
said Joel Naroff, chief economist at Naroff Economic Advisors in
Manufacturing production jumped 1.0 percent last month, the
biggest increase since February 2014, after falling 0.4 percent
in March, the Fed said. The surge, which outstripped economists'
expectations for a 0.3 percent gain, reflected a 5.0 percent
rebound in the production of motor vehicles and parts.
There were also healthy increases in the output of
machinery, fabricated metal products, appliances and furniture,
business equipment and chemical products.
Manufacturing accounts for about 12 percent of the U.S.
economy. Its recovery following a prolonged slump is being
driven by a revival of the energy sector, which is spurring
demand for machinery and other equipment.
Mining output increased 1.2 percent in April, contributing
to the overall jump in industrial production. Industrial output
has now increased for three straight months.
The dollar hit a six-month low against the euro while prices
of U.S. government debt rose. U.S. stocks were flat as investors
reacted to reports that U.S. President Donald Trump disclosed
highly classified information to Russian officials last week.
HOUSING LOSING MOMENTUM
In a separate report on Tuesday, the Commerce Department
said housing starts dropped 2.6 percent to a seasonally adjusted
annual rate of 1.17 million units, the lowest level in five
months, hurt by persistent weakness in the construction of
multi-family housing units.
Groundbreaking activity was also held down by a modest
rebound in the construction of single-family homes. Economists
had forecast groundbreaking activity rising to a rate of 1.26
million units last month.
Homebuilding increased 0.7 percent on a year-on-year basis.
Building permits fell 2.5 percent in April.
While the weakness in residential construction implies a
slowdown in homebuilding investment, the Atlanta Fed is
forecasting gross domestic product increasing at a 4.1 percent
annualized rate in the second quarter.
The economy grew at a pedestrian 0.7 percent pace in the
first three months of 2017.
Demand for housing remains underpinned by a tightening labor
market, characterized by an unemployment rate at a 10-year low
of 4.4 percent. A survey on Monday showed homebuilders'
confidence rose in May amid bullishness about sales at the
current time and over the next six months.
The underlying strength in the housing market helped Home
Depot Inc, the No. 1 U.S. home improvement chain, to
report a higher-than-expected quarterly profit and same-store
sales on Tuesday.
Home Depot and smaller rival Lowe's Cos Inc have
remained a bright spot in the retail sector as a firming economy
and higher wages drive new home sales and a rise in the value of
existing houses spurs remodeling activity.
Single-family homebuilding, which accounts for the largest
share of the residential housing market, rose 0.4 percent to a
pace of 835,000 units last month, failing to recoup all of
March's 5.1 percent decline.
Starts for the volatile multi-family housing segment dropped
9.2 percent to a pace of 337,000 units. Multi-family starts have
declined for four straight months, suggesting that rental
increases have probably peaked.
Homebuilders are failing to take advantage of a chronic
shortage of properties for sale amid complaints about expensive
building materials and shortages of lots and labor.
"Homebuilding still requires manual labor as a key input
into the production process," said Mark Fleming, chief economist
at First American. "While the need for manual labor may be
changing or declining in other industries, it's very hard to
build a home without construction workers."
(Reporting by Lucia Mutikani; Additional reporting by Jason
Lange; Editing by Paul Simao)