April PPI unexpectedly fell .1% m/o/m but rose .2% ex food and energy. Headline and core were both expected to be up .1%. The y/o/y gain in PPI is up by 5.5% headline and 1% core. Inflation in the pipeline remains high as intermediate goods prices rose .8% m/o/m and 1.1% ex f&f. Core goods, the 1st stage of production, saw prices fall 1.2% but ex f&f they rose 4% and are up 49.5% y/o/y. However, tomorrow’s CPI is much more relevant to the market as consumer prices are the focus of the Fed and is the stat most cited in the inflation/deflation debate. A benign # will give the Fed more license to be easy but the longer this lasts, the less benign inflation will appear to be. On easy comparisons, the y/o/y CPI is expected to be up 2.4% and with rates at zero, REAL interest rates remain firmly negative.

In the last housing start data point reflecting activity before the Apr 30th expiration of the tax credit, Apr starts totaled 672k, 22k above expectations but permits were 74k below the estimate as builders plan for an inevitable hangover. The gain in starts from Mar were solely in the single family (88% of total) category as multi family starts saw a drop. Permits totaled 606k, the lowest since Nov ’09 as single family permits fell to the lowest since Oct ’09. Permits fell the most in the two regions that have the highest foreclosure rate and thus the greatest competition, the West and the South. While a building slowdown is inevitable as the tax credit pulled many sales from the future, yesterday’s May NAHB builder sentiment figure reflects builder optimism that the worst is over and the lack of a tax credit won’t result in a double dip. With still huge inventories out there, the last thing I want to see is builder optimism and more starts.

Category: MacroNotes

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