U.S. Housing starts disappoint and producer price inflation, excluding food and energy costs, moderated
Housing starts fell 4.0% to an annualized 557,000 in December from a revised 580,000 in November and from an earlier estimate of 574,000. Expectations were for starts to come in at 575,000 units. Permits, however, posted a solid 10.9% gain in December rounding out 2009 at the fastest pace since October 2008.
By type of housing unit, starts of single-detached homes slowed in December while multiple units trended higher and came in at 101,000 units (+12.2%). All major regions, except the South (+3.3%), posted declines in December led by a 19% dip in the Northeast followed by the Midwest (-18.5%) and the West (-0.9%).
Housing starts have been extremely volatile although were running at a faster pace in the second half of 2009, which is consistent with other reports showing that the worst for the U.S. housing market has passed. The pace of sales is well above the recession lows, and the stock of homes available for sale, while still elevated, has moderated somewhat. Still, the homebuilders' association reported, yesterday, a second monthly deterioration in builder confidence occurred in January. With that said, the index remained well above its recent low recorded early in 2009. This weakening was reported to reflect worries about labour market conditions and the increasing number of foreclosed properties coming onto the market. The expectations component of the index held steady in January while the current conditions components softened, suggesting that, as labour market conditions stabilize, construction activity will pick up pace.
Even with all the gyrations in the data, the balance of the reports indicate that the U.S. economy pulled firmly out of recession in late 2009, and we forecast real GDP expanded at a 4.5% annualized pace. The Fed will no doubt be pleased to see the significant improvement in growth and will be watching to see if this translates into a pickup in the labour market. Until this process occurs, we see little chance of a material change to Fed's current policy stance and expect the Fed funds will be left unchanged at its current range of 0.00% to 0.25% at next week's meeting with the central bank likely to reiterate that low interest rates will be maintained for an “extended period.” We look for the first rate increase to come in late 2010 on indications that the economic recovery has picked up pace alongside a sustained improvement in the labour market.
In a separate report, the producer price index rose by 0.2% in December, firmer than forecasts for the index to hold steady. The annual producer price inflation rate jumped to 4.4% from 2.4% in November. The surge in the annual inflation rate occurred because of the sizeable 9.1% monthly drop in the energy index in December 2008, which related to a plummet in gasoline prices, dropped out of the calculation. The core measure, which eliminates the effect of food and energy price gyrations, was unchanged in December with the year-over-year rate slowing to 0.9% from 1.2% in November. Forecasters were looking for the core PPI inflation rate to come in at 1.0%.
Dawn Desjardins, Assistant Chief Economist, RBC Economics
THANKS
Paul Ink
Housing starts fell 4.0% to an annualized 557,000 in December from a revised 580,000 in November and from an earlier estimate of 574,000. Expectations were for starts to come in at 575,000 units. Permits, however, posted a solid 10.9% gain in December rounding out 2009 at the fastest pace since October 2008.
By type of housing unit, starts of single-detached homes slowed in December while multiple units trended higher and came in at 101,000 units (+12.2%). All major regions, except the South (+3.3%), posted declines in December led by a 19% dip in the Northeast followed by the Midwest (-18.5%) and the West (-0.9%).
Housing starts have been extremely volatile although were running at a faster pace in the second half of 2009, which is consistent with other reports showing that the worst for the U.S. housing market has passed. The pace of sales is well above the recession lows, and the stock of homes available for sale, while still elevated, has moderated somewhat. Still, the homebuilders' association reported, yesterday, a second monthly deterioration in builder confidence occurred in January. With that said, the index remained well above its recent low recorded early in 2009. This weakening was reported to reflect worries about labour market conditions and the increasing number of foreclosed properties coming onto the market. The expectations component of the index held steady in January while the current conditions components softened, suggesting that, as labour market conditions stabilize, construction activity will pick up pace.
Even with all the gyrations in the data, the balance of the reports indicate that the U.S. economy pulled firmly out of recession in late 2009, and we forecast real GDP expanded at a 4.5% annualized pace. The Fed will no doubt be pleased to see the significant improvement in growth and will be watching to see if this translates into a pickup in the labour market. Until this process occurs, we see little chance of a material change to Fed's current policy stance and expect the Fed funds will be left unchanged at its current range of 0.00% to 0.25% at next week's meeting with the central bank likely to reiterate that low interest rates will be maintained for an “extended period.” We look for the first rate increase to come in late 2010 on indications that the economic recovery has picked up pace alongside a sustained improvement in the labour market.
In a separate report, the producer price index rose by 0.2% in December, firmer than forecasts for the index to hold steady. The annual producer price inflation rate jumped to 4.4% from 2.4% in November. The surge in the annual inflation rate occurred because of the sizeable 9.1% monthly drop in the energy index in December 2008, which related to a plummet in gasoline prices, dropped out of the calculation. The core measure, which eliminates the effect of food and energy price gyrations, was unchanged in December with the year-over-year rate slowing to 0.9% from 1.2% in November. Forecasters were looking for the core PPI inflation rate to come in at 1.0%.
Dawn Desjardins, Assistant Chief Economist, RBC Economics
THANKS
Paul Ink
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