Source: Bloomberg.com

U.S. builders broke ground on the fewest new homes in 17 years and producer prices climbed the most since 1981, providing no sign of an economic recovery or easing inflation.

Housing starts fell 11 percent in July to an annual rate of 965,000, the Commerce Department said today in Washington. The Labor Department reported the producer price index jumped 9.8 percent from a year before.

“There’s no doubt we’re in a period of stagflation now,” said Peter Kretzmer, a senior economist at Bank of America Corp. in New York who formerly worked at both the Federal Reserve Bank of New York and the Fed Board in Washington.

Stock indexes headed for their biggest two-day loss in more than a month. The Standard & Poor’s 500 Stock Index dropped 0.7 percent to 1,269.11 at 10:40 a.m. in New York, with the S&P Supercomposite Homebuilding Index down 1.7 percent. Treasuries were little changed, with 10-year notes yielding 3.82 percent.

Compared with July 2007, work began on 30 percent fewer homes. Building permits, a sign of future construction, also fell in July, the Commerce Department reported. They were down 18 percent to a 937,000 annual pace.

Starts were projected to fall to a 960,000 annual pace, according to the median forecast of 77 economists polled by Bloomberg News. The median estimate for permits was 970,000.

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