August 17, 2010

July Housing Starts Up, PPI Rose, Industrial Production Gained

Only dark spot in relatively positive round of economic news is drop in housing permits

After a week of bad news, a round of relatively positive U.S. economic data buoyed the markets on Tuesday, August 17, with July's housing starts, producer price index, and industrial production numbers all posting increases and only housing permits showing a decrease.

New home starts gained 1.7%, according to the Commerce Department's new residential construction statistics for July, at a seasonally adjusted annual rate of 546,000 versus the revised June estimate of 537,000. Analysts had expected a rate closer to 560,000 units. Permits, meanwhile, dropped to their lowest point in 14 months, down 3.1% to a rate of 565,000 versus a revised June rate of 583,000.

"Home builders remain very cautious, marginally increasing housing starts in July as they trimmed the number of permits for new construction," wrote economists with Pittsburgh-based PNC Financial Services in an analyst note.

They added that completions dropped precipitously in July, down 32.8%, "as builders took a step back to assess demand in the post-home-buyers'-tax-credit era." The federal government's tax credit for first-time home buyers expired April 30, and the housing market has shown persistent weakness as the credit's effects have worn off.

Better news came from the U.S. Department of Labor, which reported that the July producer price index (PPI) for finished goods rose 0.2%, seasonally adjusted. The slight rise compares to a 0.5% price drop in June and a 0.3% drop in May, which had market watchers fearing deflation.

Stocks rose at the market open. In midday trading, the Dow Jones industrial average had beaten the 10,450 mark and stocks were trading at their highest point in the last week.

"The deflation can was kicked down the road in July as both producer and consumer prices rose," wrote the PNC economists, noting that the consumer price index (CPI) rose 0.3% in addition to the PPI's 0.2% gain--and that over the past 12 months, the producer price index is up a non-deflationary 4.2%.

The foods component of the PPI increased 0.7% with gains in prices for vegetables and eggs, while energy fell 0.9% as gasoline prices dipped. This was in contrast to the July consumer price index where the energy index increased 2.6%, the PNC economists said, noting that core producer prices excluding food and energy gained 0.3%, with most of the pressure coming from a 1.5% gain in light truck prices.

In other economic news, the Federal Reserve reported that July industrial production rose 1.0% in July after having edged down 0.1% in June, and factory output moved up 1.1%--its biggest jump in nearly a year--after falling 0.5% in June. A large contributor was a nearly 10% rise in motor vehicles and parts.

Read a story about the July CPI report from the archives of InvestmentAdvisor.com.

Reprints Discuss this story
This is where the comments go.