The building of new homes and apartments jumped 17.2 percent to a seasonally adjusted annual rate of 532,000 units from April's record low of 454,000 units, the Commerce Department said. Building permits, an indicator of future activity, rose 4 percent to an annual rate of 518,000 units, also better than expected.
But the gains in construction were driven by a surge in the highly volatile category of multifamily buildings, which soared 61.7 percent in May after plunging 49.4 percent in April. Single-family home construction rose at a much lower rate, 7.5 percent.
"The bottom line is that housing activity appears to have found a floor, albeit at a low level," Paul Dales, U.S. economist at Capital Economics in Toronto, wrote in a research note.
Meanwhile, the Producer Price Index, which measures wholesale prices, rose by a seasonally adjusted 0.2 percent from April, the Labor Department said. That was below analysts' expectations of a 0.6 percent rise.
Despite the increase, wholesale prices fell 5 percent over the past 12 months. That was the largest annual drop in nearly 60 years.
Excluding volatile food and energy prices, the core PPI dropped 0.1 percent in May, also below analysts' forecasts of a 0.1 percent rise.
Separately, the International Monetary Fund boosted its short-term outlook for the U.S. economy. The 185-member IMF expects the nation's gross domestic product will increase 0.75 percent in 2010, up from an estimate of no growth two months ago.
The fund also projects the U.S. economy will decline 2.5 percent this year, an improvement from its earlier projection of a 2.8 percent drop.
The Federal Reserve on Tuesday said production at the nation's factories, mines and utilities fell 1.1 percent in May, the deepest cut since March. The recession has crimped demand for manufactured goods and helped keep inflation in check.
Plant shutdowns at Chrysler LLC and General Motors Corp. also weighed on industrial production last month and probably will into the summer, economists say.
Year-to-date new home construction, as of June 14:
Source: Construction Week
ANOTHER BRIGHT SPOT
WASHINGTON --- The price of a key ingredient in white paint might signal the economy's downhill slide is easing.
Titanium dioxide prices fell 5.1 percent in the 12 months ending in May, the Labor Department reported Tuesday. That followed a 5.7 percent drop in the 12 months ending in April.
It suggests that home construction and renovation activity will be subdued in the months ahead.
Economists track titanium dioxide as a barometer of the country's overall financial health. When people are building homes, remodeling, redecorating or even getting a house ready to sell, they buy paint.
"The slower pace of decline in titanium dioxide prices could suggest that the economy is a little less weak," said Richard Yamarone, an economist at Argus Research Corp.