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Housing starts in the U.S. rose to the highest level in nine months and manufacturing in the Philadelphia region expanded more than forecast, adding to evidence an economic recovery is taking hold.

Housing starts rose 1.5 percent last month to an annual rate of 598,000, the Commerce Department said today in Washington, led by construction of multifamily dwellings. The Federal Reserve Bank of Philadelphia said its general economic index jumped to 14.1 in September from 4.2 in August.

The reports, together with an unexpected decline in jobless claims, support Fed Chairman Ben S. Bernanke’s judgment that the worst recession in seven decades has probably ended. A drop in single-family home construction and slowing orders in the Philadelphia index signal that rebounds in manufacturing and housing will take time.

“There is a recovery and it’s going to be sustainable, we just don’t know how fast it is,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “A lot of the imbalances in the economy, housing and inventories, are working themselves out.”

In another sign the economy is healing, household wealth in the U.S. increased by $2 trillion in the second quarter, bringing an end to the biggest slump on record, a separate report from the Fed showed today.

Net worth for households and non-profit groups climbed to $53.1 from $51.1 trillion in the prior quarter, reflecting the biggest quarterly jump in stock prices since 1998 and the first increase in home values in more than two years. The gain was the first since the third quarter of 2007.

Stocks Drop

Stocks fell after fluctuating between gains and losses immediately after the reports, restrained by disappointing sales at FedEx Corp. and Oracle Corp. The Standard & Poor’s 500 Index closed down 0.3 percent at 1,065.49 today in New York. Treasury securities climbed, pushing the yield on the 10-year note down to 3.38 percent at 4:33 p.m. from 3.47 percent late yesterday.

The number of Americans filing first-time claims for jobless benefits fell unexpectedly last week, a sign the labor market is deteriorating at a slower pace.

Applications dropped by 12,000 to 545,000 in the week ended Sept. 12, from a revised 557,000 the week before, Labor Department data showed today. The total number of people collecting unemployment insurance rose the prior week, to 6.23 million.

Building Permits

Today’s Commerce Department report showed that permits for future construction projects climbed 2.7 percent to a 579,000 annual rate in August, also led by an increase in multifamily dwellings.

Construction of single-family houses, which account for about 85 percent of the industry, fell to a 479,000 rate, the first decline since January. Work on multifamily units, which make up the rest of the market, jumped 25 percent to a 119,000 rate guaranteed fast personal loans.

Builders may be reluctant to further increase the supply of homes amid uncertainty over whether the Obama administration’s $8,000 tax credit for first-time buyers will be extended beyond November, economists said. The incentive, plus foreclosure- driven declines in prices, has helped stabilize the housing market in recent months.

Combined sales of new and existing homes rose in the four months though July. A report yesterday showed gains in sales and buyer traffic pushed builder confidence this month to its highest level since May 2008.

Toll Brothers

Luxury builder Toll Brothers Inc. is among companies that see demand improving, even as losses mount.

“In the last six months, we see a pretty significant change in some markets,” Chief Executive Officer Robert Toll said in an interview Aug. 27 with Bloomberg Television. “People are now concerned with missing the market.”

Economists forecast the Philadelphia Fed index would increase to 8, according to the median of 56 projections in a Bloomberg News survey. Estimates ranged from 2.5 to 14.4.

The measure showed growth in back-to-back months for the first time since the end of 2007, and reached the highest level since June of that year.

The headline index isn’t composed of the individual measures and some economists consider it a gauge of business sentiment.

The Philadelphia Fed’s shipments index jumped to 8.2, the highest level since December 2007, the month the world’s largest economy slumped in the recession. Measures of new orders, inventories and employment all decreased.

Projected Growth

A record reduction in stockpiles in the first half of this year has set the stage for factories to expand, spurring an economic recovery. The economy will expand to a 2.9 percent annual rate from July through September, according to the median estimate of economists in a Bloomberg survey this month.

Fed Chairman Bernanke said on Sept. 15 that the recession has probably ended and yet warned that growth may not be strong enough to quickly reduce the unemployment rate.

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said at the Brookings Institution in Washington, responding to questions after a speech.

Fed policy makers are scheduled to meet next week. At last month’s meeting, Federal Open Market Committee members planned to slow the pace of the central bank’s Treasury purchases. Officials left the benchmark interest rate between zero and 0.25 percent and said economic conditions mean the rate will stay “exceptionally low” for an “extended period.”

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Filed under: money by Wolf