(fxcue news) - After reporting a sharp increase in new residential construction in the U.S. in the previous month, the Commerce Department released a report on Friday showing a modest pullback by housing starts in the month of September. The Commerce Department said housing starts fell by 0.5 percent to an annual rate of 1.354 million in September after spiking by 7.8 percent to a revised rate of 1.361 million in August. Economists had expected housing starts to dip by 0.4 percent to an annual rate of 1.350 million from the 1.356 million originally reported for the previous month. The modest pullback by housing starts came as another steep drop by multi-family starts more than offset a jump by single-family starts. Multi-family starts plunged by 9.4 percent to a rate of 327,000 in September after plummeting by 10.0 percent to a rate of 361,000 in August. Meanwhile, single-family starts shot up by 2.7 percent to a rate of 1.027 million in September after soaring by 16.1 percent to a rate of 1.000 million in August. The report also showed a sharp pullback by building permits, which tumbled by 2.9 percent to an annual rate of 1.428 million in September after surging by 4.6 percent to a revised rate of 1.470 million in August. Building permits, an indicator of future housing demand, were expected to slump by 1.0 percent to an annual rate of 1.460 million from the 1.475 million originally reported for the previous month. Multi-family permits dove by 9.0 percent to a rate of 458,000, more than offsetting a 0.3 percent uptick by single-family permits to a rate of 970,000. "The paces of both permits and starts (particularly single-family starts) are strong relative to the somewhat subdued builder sentiment readings, but they align well with the movement in mortgage rates," said Nationwide Economist Daniel Vielhaber. "As such, the pace home construction should remain solid through the end of the year," he added. "At worst, it is not expected to fall back to the recent lows seen over the summer." On Thursday, the National Association of Home Builders released a separate report showing homebuilder confidence in the U.S. improved by slightly more than expected in the month of October. The report said the NAHB/Wells Fargo Housing Market Index climbed to 43 in October after rising to 41 in September. Economists had expected the index to inch up to 42.