Producer Prices Above Estimates, Housing Starts Lowest in 17 Years

- The Producer Price Index for July rose 1.2% versus estimates of a .6% increase and a 1.8% gain in June.

- The PPI Ex Food & Energy for July rose .7% versus estimates of a .2% gain and a .2% increase in June.

- Housing Starts for July fell to 965K versus estimates of 960K and 1084K in June.

- Building Permits for July fell to 937K versus estimates of 970K and 1138K in June.

BOTTOM LINE: Prices paid to US producers rose more than economists had forecast in July, reflecting the jump in energy and commodity costs that has since started to wane, Bloomberg reported. Oil prices have plunged 21% since the start of last month, natural gas is down 42%, copper is down 15% and corn has dropped 14%, helping lower the cost pressures on companies. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.16%, which is the lowest since October 14, 2003 and down 47 basis points in about six weeks. The 10-year yield is also unch. on today’s reports. Gold is falling another .7% and the US Dollar Index is down .08%. I expect the PPI to show significant deceleration next month and continue to improve over the intermediate-term.

Builders in the US broke ground on the fewest houses in 17 years in July, Bloomberg reported. Compared with July 2007, work began on 30% fewer homes. The decline in starts was led by a 30% decrease in the Northeast. Construction fell 8.2% in both the South and West. They rose 10% in the Mid-west. According to BankRate.com, the avg. 30-year fixed mortgage rate has declined 15 basis points since July 23^rd to 6.37%. I continue to expect new home construction to remain subdued over the intermediate-term as builders reduce inventory. The number of new homes for sale fell in June by the most in 40 years.