Tuesday, December 19, 2006

PPI Bounces After Recent Declines, Housing Starts Jump

- The Producer Price Index for November rose 2.0% versus estimates of a .5% gain and a -1.6% decline in October.
- The PPI Ex Food & Energy for November rose 1.3% versus estimates of a .2% gain and a -.9% decline in October.
- Housing Starts for November rose to 1588K versus estimates of 1540K and 1488K in October.
- Building Permits for November fell to 1506K versus estimates of 1540K and 1553K in October.
BOTTOM LINE: Prices paid to US producers bounced back in November, led by rebounds in the costs of energy and light trucks, Bloomberg reported. So far this year, producer prices are rising at a .3% annual rate versus a 5.3% increase at this time last year. Core prices are rising at a 2% annual rate versus a 1.6% increase at this time last year. The price of gasoline surged 17.9%, while natural gas prices rose 5.9% in November. Both have since declined. Prices for raw materials jumped 15.7%, but are down 8.5% over the last year. Excluding food and energy, intermediate goods prices declined .3% versus unch. the prior month. Costs for light trucks jumped a record 13.7% after falling a record 9.7% the prior month. The 10-year yield, the best predictor of long-term inflation is unch. on this report. I expect Producer Prices to continue their longer-term trend of deceleration next month.

Housing starts in the US rebounded in November, jumping 6.7% from October’s rate. The increase in housing starts was led by a 19% surge in the South and an 8.5% gain in the Northeast. Starts fell 8.1% in the West and 6.3% in the Midwest. I continue to believe the worst of the housing slowdown is over and it is stabilizing at relatively high levels. However, new home construction will likely remain subdued over the intermediate-term as builders continue to work down inventoriesP.

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