Producer Price Index Historically Low, Housing Starts Fall, Confidence Declines

- The Producer Price Index for January fell -.6% versus estimates of a -.6% decline and a .9% increase in December.
- The PPI Ex Food & Energy for January rose .2% versus estimates of a .2% gain and a .2% rise in December.
- Housing Starts for January fell to 1408K versus estimates of 1600K and 1643K in December.
- Building Permits for January fell to 1568K versus estimates of 1590K and 1613K in December.
- Preliminary Univ. of Mich. Consumer Confidence for February fell to 93.3 versus estimates of 96.5 and 96.9 in January.

BOTTOM LINE: Prices paid to US producers declined in January, held down by lower petroleum costs and cheaper cars and trucks, Bloomberg said. Energy prices fell 4.6% for producers in January as the price of gasoline dropped 13% and natural gas fell 1.9%. As well, prices of light trucks declined 1.4%. Prices of intermediate goods, used in the early stages of production, fell .7%. Raw materials prices declined 6.3%. The PPI year-over-year rose a historically low .2%. I continue to believe inflation fears have peaked for this cycle and inflation will mostly decelerate throughout the year.

Homebuilders in the US started work last month on the smallest number of new houses since August 1997, Bloomberg reported. Some of January’s building weakness was related to the fact that December was so unseasonably warm. I continue to believe housing construction will remain muted throughout the year as builders dramatically cut inventory as sales remain relatively healthy.

Confidence among US consumers retreated from a two-year peak this month as unusually cold weather drove energy prices higher, Bloomberg reported. Gasoline prices are still 27% lower than last year’s peak of $3.04/gallon. Gas prices should head lower again as oil has since dipped. The Expectations component fell to 83.7 versus 87.6 in January. The Current Conditions component fell to 108.3 versus 111.3 in January. I continue to believe consumer confidence will make new cycle highs over the coming months as gas prices fall further, housing stabilizes at relatively high levels, stocks rise further, interest rates remain low, the job market remains healthy and wages continue to outpace inflation.