updated 7/20/2004 8:49:39 AM ET 2004-07-20T12:49:39

Home builders took a bit of a breather in June, sending housing construction down to its lowest level in just over a year. It was another sign that the economy slowed down last month.

Major Market Indices

The number of housing projects that builders broke ground on clocked in at a seasonally adjusted annual rate of 1.80 million units, an 8.5 percent drop from May’s level, the Commerce Department reported Tuesday.

Although the 1.80 million pace was the lowest since May 2003 and was weaker than economists expected, it still represented a respectable level of activity.

Housing construction in May rose by 0.4 percent from the previous month, according to revised figures. That turned out to be stronger than the decline previously estimated.

Tuesday’s report is consistent with other economic data— including retail sales and the nation’s employment situation — that suggested the economy hit a rough patch in June. Analysts, however, are confident that’s just a temporary lull, rather than a sign of trouble ahead for the economic recovery.

Home builders, meanwhile, feel pretty good about sales prospects for July as well as for the next six months, according to a monthly survey by the National Association of Home Builders.

“Home sales continue to run hot this summer, and most builders don’t see a slowdown on the horizon,” said the association’s president, Bobby Rayburn, a home builder from Jackson, Miss.

One of the reasons for optimism: Mortgage rates have been falling in recent weeks. Rates on benchmark 30-year mortgages last week fell to 6 percent, marking the fourth straight week of decline.

Investors’ growing confidence in the Federal Reserve’s ability to keep inflation under control and recent economic reports showing the economy is growing solidly — but not so fast as to force the Fed to boost interest rates aggressively — has helped to push down bond rates, causing mortgages rates to decline.

The Fed raised interest rates for the first time in four years on June 30 in an effort to keep inflation at bay. Policy-makers increased a key interest rate to 1.25 percent, from a 46-year low of 1 percent.

In Tuesday’s report, housing construction fell across all regions of the country.

The number of housing units builders started in the Northeast last month fell by 3.5 percent to a seasonally adjusted annual rate of 165,000. In the Midwest, housing activity declined by 11.5 percent to a pace of 315,000. In the South, housing starts went down by 3.1 percent to a pace of 846,000, and in the West they dropped by 16.5 percent to a pace of 476,000.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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