By Jason Lange
WASHINGTON (Reuters) - New construction of homes fell more than expected in August, dragging on economic growth and keeping pressure on President Barack Obama to do more to help the sputtering economy.
Housing starts dropped 5 percent, the most since April, to a seasonally adjusted annual rate of 571,000 units, the Commerce Department said on Tuesday.
Economists polled by Reuters had forecast groundbreaking activity would fall to a 590,000-unit rate in August. Housing starts are at less than a third of their peak during the housing boom.
"The housing market is not only bad, but still missing low expectations," said Sal Catrini, a managing director for equities at Cantor Fitzgerald & Co in New York.
An overhang of previously owned homes on the market has left builders with little appetite to break ground on new projects and is frustrating the economy's recovery from the 2007-09 recession.
"It (the housing market) won't improve until the labor market improves substantially and that doesn't look like that would happen this year," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
U.S. stock prices rose as investors shook off the data and turned their focus to a two-day meeting the Federal Reserve kicked off on Tuesday, which is expected to end with a decision to take further steps to aid the economy. U.S. Treasury debt was little changed.
The ongoing weakness in housing also keeps pressure on the White House to provide more support.
Obama, who is struggling with a 9.1 percent unemployment rate that imperils his bid to win re-election next year, has proposed a $447 billion stimulus package combining tax cuts with infrastructure spending and extended jobless benefits.
The administration is also working with the Federal Housing Finance Agency, a regulator, to try to expand a program that helps distressed borrowers with government-backed loans.
The fall in new residential construction in August may have been fueled in part by tropical storms, including Hurricane Irene which pummeled the East Coast at the end of the month.
Starts in the Northeast fell 29.1 percent last month, a bigger decline than any other region.
Fears have grown that the United States could slip back into recession although the consensus view is for steady albeit weak growth.
Heavy machinery maker Caterpillar Inc reported on Tuesday a slight acceleration in North American dealer sales of machinery for the three months ended in August, a sign that demand remains steady despite weakness in the broad economy.
Building new homes was a pillar of economic growth during the boom years of the last decade that ended when a housing bubble burst, triggering the deepest recession since the Great Depression.
Now saddled with debt, consumers are hesitant to spend, which in turn dissuades companies from hiring. Indeed, weak demand for the purchase of homes has fueled an increase in construction of multi-family buildings, which are often rented out.
Still, housing starts for multi-family homes fell 13.5 percent in August. Single-family home construction -- which accounts for a larger share of the market -- dropped 1.4 percent to a 417,000-unit pace.
Offering a glimmer of hope for the housing sector, permits for future construction rose 3.2 percent in August, although a report on Monday showed already depressed U.S. homebuilder sentiment dipped in September.
"Housing isn't going anywhere fast," said Sean Incremona, an economist at 4Cast in New York. "The permits side is a little bit more positive looking, but it doesn't look like things are really finding their way off the ground."
(Additional reporting by Caroline Valetkevitch and Richard Leong in New York, Editing by Andrea Ricci)