US housing starts jump in May, inflation muted

New U.S. housing starts and permits surged in May from record lows, while producer prices rose at a slower pace despite higher gasoline prices, boosting prospects for the economy's recovery from recession.

The Commerce Department said on Tuesday housing starts jumped 17.2 percent to a seasonally adjusted annual rate of 532,000 units, as ground-breaking for multifamily units surged 61.7 percent after falling 49.4 percent in April.

Housing market data, including new and existing home sales have shown signs of bottoming in the slide, but the surge in mortgages rates following a spike in Treasury debt yields could hamper the sector's recovery.

Benchmark government bond yields jumped to an eight-month high last week on concerns the government's effort to pull the economy out of a 18-month old recession would push the country budget deficit to unsustainable levels and undermine the value of its assets.

The housing market's collapse is the main trigger of the longest U.S. decline in output since the Great Depression. A survey on Monday showed U.S. home builder sentiment eased in June as builders and buyers fretted over rising mortgage costs.

Compared to the same period last year, housing starts dived 45.2 percent. New building permits, which give a sense of future home construction, rose 4.0 percent, the biggest advance since June last year, to 518,000 units in May.

Building completions fell 3.3 percent to 811,000 units, dragged down by single family homes which fell 9.4 percent to a record low 491,000 units. Completions for multifamily units rose 7.7 percent in May.

The slower pace of increase in May producer prices was a relief for investors who of late have been preoccupied with inflation in the wake of the surge in government bond yields.

Compared with the same period last year, producer prices fell 5.0 percent for the largest decline since August 1949, the Labor Department said.