Article / 20 November 2012 at 5:16 GMT

3 Numbers To Watch: DE PPI and US Housing Starts & Permits

editor/analyst /
United States

Today's report on German producer prices for industrial products rounds out the country's October inflation profile, while updates on US residential construction will reveal the latest on the near-term outlook for the housing sector and its nascent recovery.

Germany’s Producer Price Index (07:00 GMT) Germany’s policy of favoring low inflation while the rest of the Continent battles the ill winds of disinflation/deflation has brought Europe's leading economy an ample dose of criticism. The Germans counter that price stability remains a crucial source of macro stability, even in the current climate of economic disorder. Amid this contentious debate comes today's producer price report--a number that’s expected to give the critics more ammunition for grumbling. Forecasters think the pace of inflation on this front slowed to 0.1% last month, down from 0.3% in September.

Fading inflation may cheer some policymaking corners in Germany, but the news will be greeted elsewhere in Europe as one more sign that the prospects for economic healing remain precarious. Last week's news that third-quarter GDP fell 0.1% for the 17-nation euro zone is a reminder that a bias for austerity still has consequences. "We are now getting into a double dip recession which is entirely self-made," complains economist Paul De Grauwe at the London School of Economics. "It is a result of excessive austerity in southern countries and unwillingness in the north to do anything else."


Germany’s producer price report today follows last week's update on October's consumer price index, which was flat for the second month in a row. News that producer price inflation is close to neutral won’t come as a surprise, but few in Europe will find inspiration in such data.

US Housing Starts (13:30 GMT) Economists expect that new residential construction's growth took a breather in October after September’s sharp increase. But a consensus outlook for a slight retreat in housing starts - to an annual rate of 840,000 for last month, vs. 872,000 previously - will likely be seen as a pause rather than a new round of trouble for the real estate sector.

Indeed, yesterday's October update on existing home sales implies that the recovery for housing rolls on. Unevenly, but intact. "Home sales continue to trend up and most October transactions were completed by the time the storm hit, but the growing demand with limited inventory is pressuring home prices in much of the country," the National Association of Realtors’ chief economist advised yesterday. "We expect an impact on Northeastern home sales in the coming months from a pause and delays in storm-impacted regions."


Housing demand, however, continues to creep higher. It's still premature to expect a new boom worthy of the name any time soon, but the data published so far in 2012 show that a modest rebound is underway. October’s weather-related turmoil and ongoing uncertainty about the fiscal cliff probably dented the trend last month, but the crowd won't see a mild setback as much more than noise at this point. As Fed chairman Ben Bernanke noted last week, "we are seeing welcome signs of improvement in the housing market."

US Residential Building Permits (13:30 GMT) For a clearer view of where the housing industry is headed, focus on the difference in newly issued permits less housing starts (both numbers are published in the same report). The two series track one another closely through time, but there's a degree of volatility in the short run. Permits are more of a forward-looking indicator—think of it as a benchmark of intentions. Starts, by contrast, track new construction that's already in progress.

Pay close attention to the spread between permits and starts, which some economists say is more important than either number in isolation. The intuition here is that when permits exceed starts, demand for housing is relatively strong. Higher permits suggest that real estate construction will pick up. True, it's only a rough guide for anticipating the future, but it's probably no accident that the recent improvement in housing has coincided with a rise in the permit/starts spread for much of the year so far.


Juhani Huopainen Juhani Huopainen
aftergame: US housing looking good, Germany looking a bit deflationary?
James Picerno James Picerno
The housing data generally remains encouraging for the US--just in time to help fend off any blowback re: the fiscal cliff. Meantime, unchanged PPI for Germany, which was lower than expected, does raise the issue of D risk.


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