New home construction surged to an eight-month high in July, providing a lift to the broader economy.
Housing starts jumped 15.7% from June to a seasonally adjusted annual rate of 1,093,000, the Commerce Department said Tuesday. Economists had expected a rate of 965,000, according to FactSet.
The department also revised June's rate of housing starts upward, to 945,000 from 893,000.
"This was a solid report," IHS Global Insight economists Patrick Newport and Stephanie Karol wrote in an analysis. "Builders' optimism is picking up."
That optimism, if it continues, could have a sustained, broad effect on the economy, including companies that specialize in home improvement and construction materials.
Home Depot, for instance, said Tuesday its profit in its fiscal second quarter, which ended Aug. 3, jumped 14% to $2.05 billion, or $1.52 a share, from $1.8 billion, or $1.24, a year earlier.
The company, based in Atlanta, also raised its profit outlook for the year. Home Depot's stock was trading up 5.8% Monday morning to $88.47.
The monthly Commerce Department report showed new home construction climbed in all regions except the Midwest, where starts fell 24.8%. Building permits, a gauge of future construction, rose 8.1% nationally in July.
Credit Suisse economist Dana Saporta said the latest housing-start report should lessen concerns, raised last week by Fed Vice Chairman Stanley Fischer, that the housing market had become a major impediment to a more robust economic recovery.
"Looking forward, a case could be made for continued improvement in the housing sector," Saporta said.
And there have been signs the national housing market is strengthening, after starting to cool last summer amid higher prices and mortgage rates.
Sales of previously owned homes have been on the rise, and a gauge of home-builder confidence is at a seven month-high, a trade group reported Monday.