[Mb-civic] Fall in housing starts adds to weak US data

Michael Butler michael at michaelbutler.com
Wed Apr 20 09:55:07 PDT 2005


 
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Fall in housing starts adds to weak US data
>By Andrew Balls in Washington
>Published: April 19 2005 13:43 | Last updated: April 19 2005 21:54
>>

The pace of new home construction dropped sharply last month the latest in a
batch of slightly weaker readings on the US economy while underlying
producer price inflation was well contained.

Housing starts fell nearly 18 per cent to a seasonally adjusted annual rate
of 1.837m units, the Commerce Department said. This marked the largest
monthly fall in 14 years and was far more than the consensus forecasts of a
5 per cent drop. Even so, housing starts remained at a high level, pointing
only to a modest cooling in housing market activity.

A separate report from the Labor Department said that producer prices rose
0.1 per cent in March, excluding food and energy slightly lower than the
consensus forecast. In the 12 months to March producer prices rose 4.9 per
cent, a sharp climb that caught the attention of Fed policymakers.

³The underlying rate is running a little high for comfort but the trend is
not deteriorating,² said Kathleen Stephansen, an economist at CSFB in New
York, pointing to moderation in the rise of prices of intermediate goods and
reduced pipeline pressures.

The headline rate jumped 0.7 per cent, a bit more than expected, led by
energy prices, which rose 3.3 per cent in the month. Financial markets were
little changed after yesterday's reports. But mixed company earnings
reports, weaker consumer spending last month and weaker consumer confidence
and employment readings have raised concerns about the impact of the high
oil price. The trade deficit has also been a significant drag on US growth.

The S&P 500 is down about 3 per cent over the past week. Bond prices have
risen, with the yield on the 10-year Treasury note falling from above 4.6
per cent at the end of March to just above 4.2 per cent.

The Fed has recently focused on the impact of energy prices on inflation,
owing to the US central bank's greater confidence in the underlying strength
of the expansion and to slack in the economy.

In March, when the Fed raised rates by a quarter point to 2.75 per cent,
discussion was dominated by inflation risks and how the Fed should change
its statement to signal concern, the minutes showed. But recent data will
make it harder to judge the economy's momentum at a time when the Fed is
already having trouble forecasting the inflation outlook.

Low market interest rates have caused some consternation at the Fed, which
began raising short-term interest rates in June. Fed governors have been
upbeat on the economy, suggesting the central bank will not be deflected
from measured interest-rate rises to keep inflation contained. But
policymakers caution that data will determine rate decisions.
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