A report released by the Commerce Department on Wednesday showed a sharp increase in new residential construction in the U.S. in the month of August, although the report also showed a steep drop in building permits during the month.

The Commerce Department said housing starts spiked by 9.2 percent to an annual rate of 1.282 million in August from the revised July estimate of 1.174 million.

Economists had expected housing starts to jump by 5.7 percent to a rate of 1.235 million from the 1.168 million originally reported for the previous month.

The much stronger than expected growth partly reflected a substantial increase in multi-family starts, which soared by 29.3 percent to a rate of 406,000 in August from 314,000 in July.

Single-family starts also showed a notable increase, climbing by 1.9 percent to a rate of 876,000 in August from 860,000 in July.

Meanwhile, the report said building permits tumbled by 5.7 percent to an annual rate of 1.229 million in August from a revised 1.303 million in July.

Building permits, an indicator of future housing demand, had been expected to edge down by 0.1 percent to a rate of 1.310 million from the 1.311 million originally reported for the previous month.

Single-family permits plunged by 6.1 percent to a rate of 820,000 in August from 873,000 in July, while multi-family permits slumped by 4.9 percent to 409,000 from 430,000.

On Tuesday, the National Association of Home Builders released a separate report showing homebuilder confidence remained firm in the month of September.

The report said the NAHB/Wells Fargo Housing Market Index came in at 67 in September, unchanged from August. Economists had expected the index to edge down to 66.

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