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Housing construction posted a surprisingly
large increase in February, bolstered by strength in all parts of
the country except the West.


      The Commerce Department reported Tuesday that construction of
new homes and apartments jumped 22.2 percent in February compared
with January, pushing total activity to a seasonally adjusted
annual rate of 583,000 units.


      Meanwhile, the Labor Department reported that wholesale prices
edged up a slight 0.1 percent in February as a big drop in food
costs offset a second monthly increase in energy prices.


      After the news, Wall Street posted gains, with the Dow Jones
industrial average gaining slightly and the Nasdaq composite index
rising more than 1 percent. The better-than-expected reports on
housing and inflation were offset by news of a dividend cut at
Alcoa Inc. and layoffs at Nokia Corp.


      While the surge in housing construction was far better than the
continued decline economists had expected, the rebound is likely to
be viewed as a temporary gain given all the problems the housing
industry still faces.


      Even with the big increase, construction activity remains 47.3
percent below where it was a year ago. The strength in February was
led by a big increase in apartment construction, which can be
highly volatile from month to month.


      All areas of the country reported an increase in February,
except the West, which has been hardest hit by the current housing
slump.


      The 0.1 percent increase in wholesale inflation was much lower
than the 0.8 percent surge in January and smaller than the 0.4
percent increase economists had expected. Compared with a year ago,
wholesale prices are actually down 1.3 percent.


      Core inflation, which excludes energy and food, edged up 0.2
percent in February, only slightly higher than the 0.1 percent gain
economists had expected. Core prices had risen 0.4 percent in
January.


      Only last summer, officials at the Federal Reserve had started
to worry that a surge in energy costs could spread to other areas
of the economy and boost inflation to unacceptable levels. But
after the financial crisis struck in the fall, the Fed switched
signals and is now aggressively fighting a deepening recession with
no real threat of inflation.


      On Wednesday, Fed officials are expected to signal that they
will continue to keep a key interest rate at a record low near zero
percent for as long as necessary and use other unorthodox means to
jump-start the economy.


      The Fed has the leeway to focus on the weak economy because
inflation pressures are expected to remain law in the face of
widespread layoffs that are depressing wage demands.


      The 0.1 percent rise in wholesale inflation in February
reflected a 1.3 percent increase in energy prices, which have been
rising for two months after having retreated for five straight
months.


      Gasoline prices jumped 8.7 percent in February after a 15
percent surge in January.


      Food costs fell for a third straight month, dropping 1.6 percent
in February, the biggest one-month decline in three years. The
costs of eggs, fruits, vegetables and dairy products were all down.


      Outside of food and energy, prices for cigarettes rose 2.7
percent, the biggest increase in two years, while the price of
light trucks rose 1.3 percent, a gain that is not expected to last
given the weakness in auto sales.


      Prices for computers dropped 4.5 percent, the biggest one-month
fall since January 2005.


      Inflation is not expected be a problem for some time to come
given the prolonged recession, which is already the longest
downturn in a quarter-century. Overall economic growth fell at an
annual rate of 6.2 percent in the October-December quarter and many
economists expect the drop in the gross domestic product for the
current quarter will be a similarly steep decline.


      Many economists say the Fed will not even contemplate interest
rate increases until the unemployment rate, which soared to a
25-year high of 8.1 percent in February, declines.


      Companies are continuing to slash costs.


      Alcoa became the latest Dow Jones industrial company to lower
its dividend to conserve cash. The aluminum maker said after the
market closed Monday that it was cutting its quarterly dividend 82
percent to 3 cents. It also said it plans to sell stock and debt to
help reduce annual costs by more than $2.4 billion.


      Nokia, the world's top mobile phone maker, said it will lay off
1,700 people worldwide to cut costs. Nokia fell 21 cents to $11.14.
The mobile phone market has been suffering as consumers spend less
during the recession.
      

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Business and Economic News

Wholesale prices edged up a tiny 0.1 percent
in February as a big decline in food prices offset a second monthly
increase in energy costs, the Labor Department reported Tuesday.

New Home Construction Falls Lower Than Expected Du

Wholesale prices edge up; housing starts surge

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