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Housing starts declined in August for the third month in a row, the Commerce Department said.

Construction on new homes fell 2.2% to an annual pace of 1.609 million in August from a revised rate of 1.645 million in July. A consensus of economists had expected a pace of 1.650 million.

The report suggests the housing market, an engine of growth over the past year, may be sputtering a little.

"Housing and consumer durables have been the two shining stars of this economic recovery," said Ethan Harris, a senior economist at Lehman Brothers. "But they are fading a bit here."

Homebuilding stocks were trading lower on the news.


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was off 3.9% at $54.47;

D.R. Horton

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was down 5.8% at $19.64;

KB Homes

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was falling 4.7% at $47.90; and

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was behind 9.6% at $35.29.

Building permits dropped 2.5% to an annual rate of 1.669 million from a pace of 1.712 million. Single-family housing starts decreased 4.4% to 1.252 million in August from 1.309 million in July.

Earlier in the year, housing starts surged above an annual rate of 1.7 million homes as mortgage rates declined to 40-year lows. But some have said that pace would not be sustainable for the long term.

"At some point, you have to pull back to more sustainable levels," said Joel Naroff, an economist at Naroff Economic Advisors, a Holland, Pa.,-based consulting firm. "This is not really an indication of a housing problem. But the implication for economic growth is that housing is not going to add a lot."

In a separate report, initial jobless claims for the week ended Sept. 14 fell 9,000 to a seasonally adjusted rate of 424,000, below expectations for 426,000 new claims for unemployment. But the four-week average, which adjusts for volatility, increased 9,000 to 418,500, its highest level since May.