Construction of new homes in the US picked up sharply in July, a positive indicator in the continuing recovery of the world's largest economy.

The Department of Commerce reported that the construction of over a million new housing units started in July, which is higher by 15.7% from June and the highest since November 2013.

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The seven-month tally is higher by over a fifth from last year, and more are upcoming based on the increased applications for building permits, according to the Wall Street Journal.

The paper, however, questioned the sustainability of the growth. It pointed out that the surge was driven by catch-up efforts in the South for construction delayed by summer rains and most of the new buildings constructed were apartments, which is a volatile segment of the market. The Wall Street Journal further pointed to the looming rate hike of the Federal Reserve as a dampener for growth, as this pushes up mortgage rates.

Still, the Dow Jones industrial average rose 80.85 points to close at 16,919.59 as the market cheered the good news, according to the Los Angeles Times.

The Times also quoted Credit Suisse and the IHS Global Insight which greeted the data with more optimism describing it as a solid report and sign that optimism is picking up.

The sustained recovery of the construction industry bodes well for the rest of the economy as it affects other sectors as well, the paper said. Demand for labor, raw materials, furnishings and appliances  go up when new houses are put up, it added.

The Commerce Department said that new-home construction climbed in all regions except the Midwest, where starts fell 24.8%. In the West, a major home building region, starts rose 18.6% in July from a month earlier.  

Despite the surge, the paper noted that the actual units built are still below the normal pace during the bubble years, when nearly 1.5 million new houses were built monthly.

TagsUS economy, housing starts