Tuesday, December 19, 2006

Producer Prices +2%; Housing Starts Up 6.7%*

From the Bureau of Labor Statistics:

The Producer Price Index for Finished Goods advanced 2.0 percent in November, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This gain followed declines of 1.6 percent in October and 1.3 percent in September. The index for finished goods other than foods and energy rose 1.3 percent in November compared with a 0.9-percent decrease in the previous month. At the earlier stages of processing, prices for intermediate goods moved up 0.7 percent after falling 1.1 percent in the prior month, and the crude goods index increased 15.7 percent following a 10.5-percent decline in October.

The number ex-food and energy was up 1.3%, the largest jump in the last 12 months.

The upturn in the finished goods index was broad-based and led by prices for energy goods, which climbed 6.1 percent in November after declining 5.0 percent in October.

Energy and crude goods also increased the most in 12-months.

Here's how Bloomberg reported the number:

Prices paid to U.S. producers rose in November by the most since 1974, led by rebounds in the costs of energy and light trucks. Prices excluding food and energy increased more than forecast.

The 2 percent gain in the producer price index was more than forecast and followed a 1.6 percent decrease in October, the Labor Department said today in Washington. Excluding food and energy, the so-called core rate rose 1.3 percent last month, the most since July 1980, after falling 0.9 percent.

It looks like the Federal Reserve is back in play.

Housing Starts Increase 6.7%

Housing starts in the U.S. rebounded in November from the lowest level in more than six years, while building permits dropped to a nine-year low, suggesting weakness in home construction will persist in the new year.

Builders broke ground on new dwellings at an annual rate of 1.588 million last month, more than expected and 6.7 percent higher than October's 1.488 million rate, the Commerce Department said today in Washington. Building permits fell 3 percent to a 1.506 million pace, the lowest since December 1997.

Recent data suggest the most severe housing slowdown since 1990 may be nearing a bottom, as mortgage rates have fallen below last year's levels, making homes affordable for more people. Wet weather in October may have delayed some starts until November, helping to boost last month's figures, economists said. Still, near-record inventories of unsold homes will keep a lid on home construction well into 2007.

``Mild weather plus more attractive pricing on the part of home builders probably helped lead to this bounce in starts,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. The decline in permits shows builders ``are continuing to plan for less construction.''

Let's go to the Census information which has a very telling statistic. The margin of error for the reported numbers is plus or minus 10.1%. That's not a margin of error -- it's a margin of guessing and makes this number near-worthless.

In addition, consider the following. New and existing inventories are high. Sales area slowing. Prices are under pressure. While builder confidence may have stabilized, it is still at multi-year lows. So builders are increasing the rate of construction? That just doesn't make sense in the current environment.

Call me a skeptic on the housing number for now.

Go to Calculated Risk for more information -- charts graphs and some implications for the construction job market.