Quick Take: Housing Starts Jump 17% from April

Housing Starts Jump by 17% from April:

The Department of Commerce reports that housing starts for privately owned structures increased by 17% in May on a seasonally adjusted basis.The 17% increase well exceeded economist expectation of a 4.8% increase.
The majority of the increase is attributable to a 77% increase in multifamily units (5 units or more).
Most of the increase in housing starts took place in the west, which increased by 29% from April. The northeast exhibited the smallest change of 2%.
However, year-over-year housing starts are still down nationally by 45%. Though painful for home builders, the drastically lower activity is helping to control housing inventory from rising.

Producer Prices Increase Modestly from April:

The producer price index for finished goods increased by 0.2% on a seasonally adjusted basis from April to May.
The rise in the index was less than the 0.6% increase expected by economists.
However, the price index is still down substantially, 5%, from May of last year. The year-over-year decline is primarily attributable to a decrease in finished consumer goods, which declined by 9.3% from May 2008.
The price index for intermediate and crude goods also fells substantially, by 12.5% and 41% respectively. Again, the majority of the decline was due to a decline in the demand for manufacturing inputs.

Industrial Productivity Declines:

Industrial productivity declined by 13% from last May and 1.1% from April. The declined matched economist expectations.
Manufacturing activity has declined the most, 15% from May 2008.
Capacity utilization decreased from 79% last May, to 69% in May 2009. Average utilization is approximately 81%.

What does today’s data mean for consumers?

The decline in the producer price index and the capacity utilization rate suggest that deflation, and not inflation, is the immediate threat to the economy. The current capacity utilization rate indicates that the economy is producing 30% below its maximum capacity, whereas normally, the economy would operate 20% below said amount. Thus, manufacturers can meet future demand using existing resources, rather than by increasing prices to ensure that supply and demand equilibrate.
The decline in the producer price index indicates that the cost to produce goods is decreasing and should put further downward pressure on the price of retail goods and services.
The increase in housing starts is also very salutary to the overall economy, as the recession will begin to abate as residential construction activity increases. It also means, that there is higher demand for residential housing!
Based on the increase in housing starts, NAR is revising its forecast for GDP growth upward to -1.1% in Q2 and +0.4% in Q3.

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