Wednesday, February 20, 2013
This morning's tame wholesale inflation and Housing Starts
readings could potentially come in the way of the market's march
towards new all-time highs in today's session.
Minutes of the Fed's January meeting coming out later today could
potentially be another source of concern for the market if it
shows that the FOMC continued its discussions of how to ease the
$85 billion purchases of bonds. The market got surprised in early
January when it found that the FOMC had discussed the issue in
the December meeting, but the issue may not carry as much sting
The January Housing Starts data show a pause following the very
strong gains in December. Starts came in weaker than expected at
the seasonally adjusted annual rate of 890K in January versus
expectations of a 920K reading and December's 973K level (revised
upwards down from the originally reported 954K level).
The January Starts level is up 24% from the same period last
year, but remain significantly below the bubble peak of 2.3
million in 2006. Building Permits, a leading indicator of future
construction activity, increased 1.8% in January 925K, the
strongest pace since June 2008.
Gains in the homebuilder sentiment index, a leading indicator of
home construction, in recent months confirms the positive
momentum on the home construction front that we have been hearing
from homebuilders like
), which reported today,
) and others. While the February homebuilder sentiment index
released Tuesday weakened a bit from the month before, its 2012
gain has been one of the highest on record.??????
Based on the historical correlation between the homebuilder
sentiment index and housing starts, some analysts estimate that
the index's current level is consistent with housing starts that
are in the 1.5 million vicinity. This would mean that housing
starts could continue to improve even if the index doesn't show
much improvement in the coming days.
Bottom line, housing could potentially be a bigger contributor to
GDP growth this year than has been the case in recent quarters,
offsetting slack from the external sector.??????
Director of Research
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