Instant View: Housing starts, producer prices rise
U.S. housing starts rose more than expected in January to their highest rate in four months but permits for future home construction dropped sharply after hefty gains the prior month, according to a government report on Wednesday that showed the housing market still bouncing along the bottom.
U.S. producer prices rose 0.8 percent in January in line with expectations on a rise in energy prices, a Labor Department report showed on Wednesday.
KEY POINTS: * The Commerce Department said housing starts jumped 14.6 percent to a seasonally adjusted annual rate of 596,000 units, the highest since September. * December's starts were revised down to a 520,000-unit pace from the previously reported rate of 530,000 units. * Economists polled by Reuters had forecast housing starts edging up to a 554,000-unit rate. Compared to January last year, residential construction was down 2.6 percent.
COMMENTS:
CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO/MITSUBISHI UFJ, NEW YORK:
Construction seemed to be centered in multi-family, but single-family construction was not hard hit by one of the worst winters we've had in 20 years.
Housing is still bumping along the lows here. That said, multi-family starts are up and perhaps that bodes well for the eventual recovery in the housing market. It's going to be a slow, grudging recovery, but it's a recovery nonetheless.
PPI is starting to bleed through to the core finished level though this time the index seems to have been boosted by a rise in prescription drug prices so it might be a bit one-off. But this report puts to rest any fears the Fed might have about deflation. There's no evidence of deflation in this report. Prices are starting to percolate at the lower levels of production and that will push through to consumer prices later on this year.
MICHAEL STRAUSS, CHIEF ECONOMIST, COMMONDFUND, WILTON, CONNECTICUT
The housing data for January has a weather distortion in it. These numbers would have been stronger if we didn't have weather issues in January.
The building permits data in December had a pop because of changes in regulations that got some builders to submit permits in December, and warehouse them ahead of regulation changes that would go into effect in January. The imbalance between single- and multi-family suggests we know weather was horrible last month, we know that hurt the single-family side. On the multifamily side it's probably a hint that some of what people are doing on an investment basis is going back to building apartments. Why? Because rental values are going up. So there may be a macro picture, and that fits with what we're seeing in architectural billing hours.
Even with the estimate of those weather distortions, is this number stronger than people would have expected? Yes. What's the answer to that? Well the economy is doing better, plain and simple.
ANTHONY KARYDAKIS, SENIOR U.S. ECONOMIST, COMMERZBANK AG, NEW YORK
HOUSING STARTS: The number should be brushed aside. This should not be a report taken at value because the historical volatility of the series and the seasonal adjustments during this time of the year.
Most of the starts came from multi-family. That should be telling you something. Single-family starts are actually down about 1 pct.
PPI: We had a relentless run-up in commodity prices last month. There is a steady gap that has opened up between the headline and core PPI readings. The surge we are seeing from immediate goods and crude goods will feed to finished goods in PPI report. For the year, there will be a drift up in core price, but nothing ominous.
How far will we see the pickup in PPI and consumer inflation measures like core CPI and core PCE? I would be more cautious here because the correlation between them is tenuous at best. Companies right now don't have much pricing power.
What does it mean for Fed policy? It doesn't mean that much right now. Inflation is and cannot be on Fed's radar screen. It's still below the high end of its comfort zone of 2 percent.
MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY MELLON, NEW YORK:
The Fed's contention has been that although inflation has been seen overseas, it's not yet impacted the U.S. More to the point, the Fed is not going to be concerned until it spills over into the core reading. What we see from this is that it has indeed spilled into the core and could force the Fed to rethink its outlook for the remainder of the year. That said, one report does not a trend make. But it has certainly put inflation data on the radar for the market.
STEVEN WOOD, CHIEF ECONOMIST, INSIGHT ECONOMICS, DANVILLE, CALIFORNIA:
Housing starts rose sharply in January despite severe winter weather. However, all of the gain was in the relatively small but highly volatile multifamily sector. The much larger and much more important single-family housing sector, states slipped and remained at an extremely depressed level. Severe winter weather often has a much larger effect on single-family starts than on multifamily starts so this month's pattern is not all that unusual. Home sales and housing construction are still struggling to find a fundamental level of support in the absence of tax credits amid somewhat higher mortgage rates, high unemployment and modest income growth, and relatively tight mortgage standards.
TIM GHRISKEY, CHIEF INVESTMENT OFFICER, SOLARIS ASSET MANAGEMENT, BEDFORD HILLS, NEW YORK:
PPI: Certainly above expectations, especially the core. So this is a big uptick and at some point, a potential issue here is the Fed getting stuck between a rock and a hard place. In other words, rising inflation and high unemployment. That is a potential issue and I don't think one with a good answer from the Fed standpoint of what they do.
HOUSING STARTS: A nice uptick in housing starts, which is actually surprise given the weather. Housing starts are a mixed blessing -- good for the builders but not good for working off the inventory. The big news here is the PPI and there is not much of a market reaction here to it. There is just some sort of surprise at it, people will want to look at the details of it and whether it is just a one month aberration.
JAMES MEYER, CHIEF INVESTMENT OFFICER, TOWER BRIDGE ADVISERS, WEST CONSHOHOCKEN, PENNSYLVANIA:
Producer prices, obviously, are going to sit there and raise the specter of inflation. It looks like the headline number was pretty much in line, but on the ex-food and energy number the price increase might be a little troubling because it suggests that inflation is spreading across all raw materials. If you print money and have a stronger economy you're going to have some inflationary pressures. This is something that's going to be with us for some time.
The housing number is a double-edged sword. Starts were above expectations but permits were down. That cuts both ways. But I don't take January data too seriously; it's a notoriously slow month, so seasonal adjustment numbers come into play, as does weather. I don't make much of anything about this month, the season is just beginning. February and March will be much more important for the industry. But the sector is still groping for a bottom, that's the most optimistic way you can put it. Some markets are still declining.
DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:
ON HOUSING: January's rise in starts is in part a response to a December surge in permits which has now mostly reversed, but the latest report, while complicated by special factors of weather and regulatory changes, looks consistent with a moderate underlying improvement. The January permits fall follows a surge of 15.3 percent in December that was attributed to anticipated regulatory changes in 3 states.
VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:
ON PPI: The advance was predominately supported by an increase in energy prices (up 1.8 percent), which have been on the rise for the past four months. Given that some rises in manufacturing costs can at times be passed on to consumers, and the fact that the CPI started to rise last year around the same time the PPI started increasing, it is highly likely that the release measuring prices from the consumer point of view will also designate a rise in January.
MARKET REACTION: STOCKS: U.S. stock index futures hold gains BONDS: U.S. bond prices pare gains FOREX: The dollar pares losses versus euro
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