PPI Moderate, As Expected

The finished goods producer price index for March rose a moderate 0.5% following the unrevised 1.4% decline one month earlier. Consensus expectations had been for a 0.4% gain.

Less food & energy the PPI (core) also was moderate and increased 0.1%, half the expected rise. Durable consumer goods rose 0.1% (0.5% y/y) for the second consecutive month and nondurables prices continued weak due to declines in apparel prices & textile house furnishings. Prices of all finished consumer goods less food & energy rose 0.2% (1.9% y/y) for the second month and core consumer nondurable goods prices increased 0.2% (2.9% y/y), half the prior month's increase.

Capital equipment prices increased just 0.1% (1.4% y/y) for the second consecutive month.

Finished energy prices during March increased 1.8% (15.6% y/y) as gasoline prices jumped 9.1% (22.2% y/y) but home heating oil fell for the third straight month, down 3.6% (+15.2% y/y) along with natural gas prices which dipped another 0.5% (+22.3% y/y). Residential electric power costs fell 0.7% (+7.9% y/y).

The Short-Term Energy and Summer Fuels Outlook from the US Energy Information Administration can be found here. Also available is the U.S. Energy Prices: Base Case.

Intermediate goods prices fell for the second consecutive month. Core intermediate prices also were tame and rose just 0.1% following the 0.5% surge during February.

Crude goods prices dropped sharply again due to lower energy prices, which fell 4.5%. This month, however, crude oil prices have backed up with the price of WTI crude oil yesterday at $70.41 per barrel versus the March average of $62.90. Core crude prices were strong last month and rose 0.8% due to continued strength in prices for copper base scrap (57.6% y/y), aluminum scrap (25.5% y/y) and iron & steel scrap (10.7% y/y). During the last thirty years "core" crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

Housing starts last month fell another 7.8% m/m to 1.960M units following the like decline during February that was little revised. The drop by far exceeded Consensus expectations for a decline to 2.04M starts.

Lower single-family starts led the weakness last month with a 12.0% drop to 1.591M, the lowest level in one year.

Single family housing starts in the West were notably weak and registered a 19.4% (-5.6% y/y) decline to one of the lowest levels in the last two years. In the Midwest single family starts also fell sharply by 19.6% (-22.0% y/y). In the South fell hard for the second month, by 7.0%, but remained up 17.3% y/y while in Northeast starts slipped a moderate 2.7% (+4.4% y/y).

Multi family starts made up half of the prior month's decline with a 15.7% increase into the middle of the range of the last two and one half years.

Building permits fell for the second consecutive month and single family permits fell hard again, by 6.9% (-0.6% y/y) to the lowest level since late 2003.

The April level of the National Association of Home Builders' (NAHB) Composite Housing Market Index fell 7.4% and the latest level is down 30.6% since the high last June. It also was the lowest level since November 2001.

During the last twenty years there has been an 82% correlation between the y/y change in the annual composite index and the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.

The April index for current sales of single family homes dropped 8.5% (-26.0% y/y) and the index for sales in six months dropped 6.5% (-23.7% y/y).

An index of the traffic of prospective home buyers was at the lowest level since early 2003.

The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.

Visit the National Association of Home Builders.

The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

Again the rise in store sales accompanied a jump in retail gasoline prices. The second consecutive ten cent w/w surge in gas to $2.78 per gallon (24.4% y/y) raised the April average to $2.69. In spot market trading yesterday gasoline prices easily crested two dollars and rose to $2.14.

The housing market in England and Wales is showing improvement. The RICS (Royal Institute of Chartered Surveyors) survey of the housing market shows that although the pace has slackened, house prices continue to rise and expectations of price increases are becoming stronger as can be seen in the first chart.

The RICS survey, which was released today is an excellent source of information on many aspects of the housing market in England and Wales. It is found in Haver's UK data base and in INTSRVYS-G10+ Country Surveys.

There are data on the average units sold and the average stock of units held per chartered surveyor and the relation of sales to stocks. The average units sold has improved and in March was 16.4% above the units sold in March 2005. Over the same period the stock of units held has declined by 5.9%. The second chart shows the year over year percentage change in the average units sold and the average stock of units per chartered surveyor. Although we do not have the absolute levels of sales and stocks of housing units, the rising trend of sales and declining trend of stocks suggests an improving supply and demand situation.

The same sort of relative improvement in the housing market can be seen in the year to year difference in the percent balances of new buyer enquiries and the new offerings by sellers. (See the third chart.) The year to year difference in the percent balance of new buyer enquiries has been positive since early 2005, while the year to year difference in the percent balance on new offering by sellers has been negative.