CPI at Expectations, Housing Starts Drop Again, Industrial Production Surges

- The Consumer Price Index for March rose .3% versus estimates of a .3% gain and unch. in February.

- The CPI Ex Food & Energy for March rose .2% versus estimates of a .2% gain and unch. in February.

- Housing Starts for March fell to 947K versus estimates of 1010K and 1075K prior.

- Building Permits for March fell to 927K versus estimates of 970K and 984K prior.

- Industrial Production for March rose .3% versus estimates of a .1% decline and a downwardly revised .7% decline in February.

- Capacity Utilization for March rose to 80.5% versus estimates of 80.3% and a downwardly revised 80.3% in February.

BOTTOM LINE: US consumer prices met economists’ expectations in March, Bloomberg reported. Core prices rose 2.4% year-over-year in March versus a 2.3% gain in February. Energy prices rose 1.9%, the most since November, versus a .5% decline the prior month. New vehicle costs fell .1% and clothing costs declined 1.3%. Food prices rose .2% versus a .4% rise the prior month. The cost of medical care rose .1% for the month. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 2 basis points to 2.35% and is down from 2.68% one month ago. I continue to believe inflation fears have already peaked for the year and gauges will show a meaningful deceleration before year-end.

Housing starts in the US dropped more than twice as much as forecast in March to a 17-year low, Bloomberg reported. Work began on 947,000 homes at an annual rate, down 11.9% from February and the fewest since March 1991. Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25% decline in 2007 that was the largest in 28 years. MBA Mortgage Applications rose 2.5% this week and continue to trend higher from February lows. According to BankRate.com, the average 30-year fixed rate mortgage is currently 5.73%, down from 6.12% in early March and down from 6.42% in June of last year, which was the highest since April 2002. In May of 2000, the average 30-year fixed rate mortgage was 8.38%. The Homebuyer Affordability Index is at the best level since April 2003. Yesterday, the NAHB reported that its Future Sales gauge rose to 30, the highest since August of last year and up from a record low of 24 in November of last year. New home construction will remain muted over the intermediate-term as homebuilders continue to work down inventories.

Industrial Production in the US unexpectedly rose the most since November last month, helped by an increase in demand for business equipment, Bloomberg reported. Excluding autos, factory output surged .4% during the month. Autos and parts production dropped 5.4% in March versus a 1.3% decline in February. General Motors(GM) has idled or partially closed 27 of its 71 North American plants due to the American Axle strike. Industrial Production continues trending at levels not normally associated with economic contraction and should improve upon the resolution of the American Axle strike.