Morning Report: Another bad inflation report

Posted on February 16, 2024 by Brent Nyitray

Vital Statistics:

Stocks are lower after the producer price index came in hotter than expected. Bonds and MBS are down.

The producer price index (a measure of inflation at the wholesale level) rose 0.3% in January, which was above expectations. Services drove the increase. On a year-over-year basis, the PPI rose 0.9%, which is below the Fed’s 2% target. Healthcare was a big driver of the increase in services cost, and services inflation is driven primarily by wages.

Housing starts rose 1.33 million in January, which was way below expectations. This is 14% below December and down around 1% on a year-over-year basis. Building permits fell 1.5% MOM to 1.47 million, which is up 9% on a YOY basis.

The mix of permits is changing pretty dramatically, with single-family houses up 36% YOY while multi-fam is down 27%. Remember, we have a record number of multi-fam units under construction, and rental inflation is leveling out.

Homebuilder sentiment improved in January, according to the NAHB.

“Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “And while mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.”

“With future expectations of Fed rate cuts in the latter half of 2024, NAHB is forecasting that single-family starts will rise about 5% this year,” said NAHB Chief Economist Robert Dietz. “But as builders break ground on more homes, lot availability is expected to be a growing concern, along with persistent labor shortages. And as a further reminder that the recovery will be bumpy as buyers remain sensitive to interest rate and construction cost changes, the 10-year Treasury rate is up more than 40 basis points since the beginning of the year.”

Filed under: Economy | 23 Comments »