US: PPI as expected, but sharp plunge in housing starts
Michigan consumer sentiment unexpectedly worsened in early February, but in a longer perspective remains at elevated levels. The headline index dropped to 93.3 in early February from 96.9 in January. Consensus was looking for a marginal easing to 96.5. Expectations slipped to 83.7 from 87.6 and the current situation fell to 108.3 from 111.3. Michigan analysts said that unemployment fears amongst lower income households were the driver behind the decline. The personal finance situation and the buying conditions worsened too. Inflation expectations for 1-year ahead stabilized at 3%, while longer term inflation expectations fell to 2.9%.
The January PPI report came out in line with expectations. Lower energy prices pushed headline PPI 0.6% M/M lower. Excluding the volatile energy and food prices, core PPI increased by 0.2% M/M. The report is neutral for Fed monetary policy outlook.
The housing starts plunged by 14.3% M/M to 1408K (annualized) in February, largely undercutting expectations for a modest decline to 1500K. Housing starts were up in December and November, probably due to mild weather and we suppose that the January plunge is a payback for that. Taking December and January together gives probably a better picture of the current situation in the residential housing sector. So no reason to panic, but on the other hand one cannot but admit that the housing sector will remain a drag on overall growth for some quarters. The details were not very optimistic either. Starts fell in three out of four regions. The rise in the North- East was probably weather-related. Inventories of unsold houses is very high and housing completions fell. This should be a negative for housing payrolls that shall decline for many months to come
