Construction Revved Up, Prices Tame
- July Housing Starts were up significantly, by 15.7 percent to a 1,093,000 unit annual rate.
- Permits for new residential construction increased in July by 8.1 percent to a 1,052,000 unit pace.
- The Consumer Price Index increased by a tame 0.1 percent in July. Core CPI also gained 0.1 percent.
It was a good mix of U.S. data to start the day. House construction revved up in July after easing in June. Consumer prices in July were well contained. What’s not to like? Housing starts increased by a strong 15.7 percent to hit a 1,093,000 unit annual rate. Single-family starts gained 8.3 percent to hit their strongest rate this year. Multi-family starts were up by a robust 33.0 percent, hitting their best mark this side of the Great Recession. Permits numbers were also up, but they look a little tentative on the single-family side. Single-family permits increased by just 0.9 percent in July, and are now on par with last April. Multifamily permits were up by 23.6 percent, still well shy of April’s strong reading. Overall, it is a good residential construction report, reinforcing the July and August rebound in builders’ confidence reported by the National Association of Home Builders.
After three consecutive months of above-trend readings, the Consumer Price Index settled down in July, showing a tame 0.1 percent increase. The headline CPI is now up an even 2.0 percent over the past 12 months. Food prices were still warm in July, up 0.4 percent, boosted by the severe drought in California. However, a bumper corn harvest this year will have a mitigating effect on overall food prices. Countering the ongoing gains to food prices, consumer energy prices were down by 0.3 percent as crude oil and gasoline price eased. The core CPI (all items less food and energy) was also calm, gaining just 0.1 percent. Core CPI is up 1.9 percent over the past 12 months. Today’s CPI report for July will take some pressure off the Fed. As long as production and employment metrics are going in the right direction, and inflation looks tame, they will see no need to deviate from current expectations of an October end to QE and a mid-2015 rendezvous with interest rate lift-off.
Market Reaction: Equity markets opened with gains. The yield on 10-Year Treasury bonds is down to 2.38 percent. NYMEX crude oil is down to $95.90/barrel. Natural gas futures are down to $3.90/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Housing Starts 081914.