U.S. housing starts moderate in January after the previous month’s surge; producer prices inched higher in January

U.S. housing starts moderate in January after the previous month’s surge; producer prices inched higher in January

• Housing starts declined by 8.5% to an annualized pace of 890,000 units in January 2013 and missed market expectations for a modest drop to 920,000 units.
• Building permits increased by 1.8% in January to an annualized 925,000, slightly stronger than market expectations for a reading of 920,000, and represented the highest level since June 2008.
• Some moderation in homebuilding was expected to kickoff 2013 after the sharp acceleration at the end of 2012, with the upward revisions to the previous month bringing the quarterly increase in starts to an annualized 84% in the fourth quarter of 2012. We anticipate that the pullback in construction in January is not indicative an overall slowing in the housing sector, but that it is a return to a more sustainable pace of growth following the outsized gain to end 2012. Indeed, the continued increase in building permits is supportive of a further improvement in construction activity during the coming months. We maintain our expectation that housing starts will maintain an upward trajectory this year and into 2014, thereby providing a key support to overall economic growth during our forecast horizon.
• In a separate report this morning, the producer price index (PPI) rose by a slightly smaller than expected 0.2% in January 2013 (market expectations were for a 0.3% gain) following a 0.3% dip in December 2012. Excluding the food and energy components, core prices also rose by 0.2% in the month. On a year-over-year basis, growth in the overall PPI inched up to a still modest 1.4% in January from 1.3% in December. The annual increase in the core component slipped to 1.8% from 2.0% in December, thereby marking the first time the measure has been below 2% since February 2011.

Privately owned housing starts in the US declined by 8.5% to an annualized pace of 890,000 units in January 2013 and missed market expectations for a reading of 920,000. Softening the blow, however, was a sizable upward revision to the previous month’s already lofty 954,000 annualized starts, with the pace of home building in December now registering an annualized pace of 973,000 units. The moderation in the pace of the new home construction in January reflected a pullback in multiple-unit construction (down 24.1% to 277,000) that largely reversed the previous month’s upwardly revised surge to a 4.5-year high (up to 365,000 from the previously reported 338,000). In contrast, single-unit starts edged higher by 0.8%, with the 613,000 annualized starts representing the highest level since July 2008. Weakness was concentrated in the Midwest (-50.0%) and the Northeast (-35.3%) with each region seeing sizable declines in multiple-unit starts. Starts rose in the West (16.7%) and the South (4.1%) to provide some offset. The number of building permits issued increased in January, rising by 1.8% to 925,000 annualized units, which was the highest level since June 2008. The increase reflected a 1.9% rise in permits for single-unit homes (to 584,000) while permits for multiple-unit residences rose by a slightly smaller 1.5% in the month (to 341,000). These both represent the highest levels since the summer of 2008. Some moderation in the pace of homebuilding was expected to kickoff 2013 after the sharp acceleration at the end of 2012, with the upward revisions to the previous month bringing the quarterly increase in starts to an annualized 84% in the fourth quarter of 2012. We anticipate that the pullback in construction in January is not indicative of an overall slowing in the housing sector, but that it is a return to a more sustainable pace of growth following the outsized gain to end 2012. Indeed, the continued increase in during the coming months. We maintain our expectation that housing starts will maintain an upward trajectory this year and into 2014, thereby providing a key support to overall economic growth during our forecast horizon. In a separate release this morning, US producer prices inched up by 0.2% in January 2013 following a 0.3% dip in December 2012. Energy prices dipped for a fourth consecutive month, slipping by 0.4% in January following 0.6% and 3.3% declines in December and November, respectively. Gasoline prices fell 2.1% following a 1.8% drop in December and November’s 7.2% plunge. Food prices jumped 0.7% following a 0.8% decline in December that had marked the first drop in food prices in seven months. Excluding the food and energy components, core producer price inflation remained modest in January, rising 0.2% in the month following 0.1% and 0.2% increases in December and November, respectively. On a year-over-year basis, the overall producer price index inched up to a still modest 1.4% in January from 1.3% in December. The modest monthly gain in core prices pushed the year-over-year rate for that measure down to 1.8% in January from 2.0% in December. This marked the first time that the annual gain in core prices has been below 2% since February 2011.