Core CPI Decelerates, Housing Starts Slow, Industrial Production Decelerates, Capacity Utilization Falls

- The Consumer Price Index for July rose .4% versus estimates of a .4% increase and a .2% gain in June.
- The CPI Ex Food & Energy for July rose .2% versus estimates of a .2% gain and a .3% increase in June.
- Housing Starts for July were 1795K versus estimates of 1840K and 1841K in June.
- Building Permits for July were 1747K versus estimates of 1840K and 1869K in June.
- Industrial Production for July rose .4% versus estimates of a .6% gain and a .8% increase in June.
- Capacity Utilization for July fell to 82.4% versus estimates of 82.7% and a downwardly revised 82.3% in June.

BOTTOM LINE: Prices paid by US consumers excluding food and energy eased last month, making it easier for the Fed to hold interest rates steady, Bloomberg said. Gasoline prices rose 5.3% in July after falling 1.0% in June. Food prices rose .2% versus a .3% gain the prior month. Housing costs rose .3% versus a .2% gain the prior month. Medical care gained .2% versus a .3% increase in June. I continue to believe inflation fears have peaked for this cycle and that the Fed will not hike rates at the Sept. meeting.

Home construction in the US dropped last month to the lowest level in almost 2 years, Bloomberg reported. Starts fell 7% in the Northeast, 2.9% in the West and 1.9% in the South. Starts rose .7% in the Mid-west. I continue to believe the housing market is slowing to more healthy sustainable levels. Housing futures now point to a 5% decline in the average home price over the next 9 months. Considering the average home price is up over 50% the last few years, a decline of this magnitude would be considered a “soft landing.”

Industrial Production in the US grew less than forecast in July as factories churned out fewer autos and parts, Bloomberg said. Output of automobiles, furniture and electronics fell 3.2% versus a 2.1% gain the prior month. Manufacturing of autos and parts fell 6.2% versus a 4.2% gain the prior month. Capacity Utilization, which the Fed watches closely, fell and is approaching the long-term average of 80.7%. I expect production and capacity utilization to continue decelerate over the intermediate-term.