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Jul. 17, 2013

Economy Watch: Homebuilders Feeling Optimistic

By Dees Stribling, Contributing Editor

The National Association of Home Builders reported on Tuesday that its Housing Market Index rose six points over the last month to a score of 57 for July. That’s not only well above the optimism-pessimism threshold of 50, it’s the highest reading for the index since January 2006, when the housing bubble was only a possibility, rather than a dreadful reality.

All three of the index’s components posted gains in July. The component gauging current sales conditions rose five points to 60, which is its highest level since early 2006. Also, the component measuring sales expectations over the next six months gained seven points to 67, and the component tracking traffic of prospective buyers rose five points to 45—marking the strongest readings for each since late 2005.

The spike in optimism was a function of the recovery of the housing market, but there was more to it than that. “Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,” NAHB chief economist David Crowe noted in a press statement. “Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”

CPI edges up

The Bureau of Labor Statistics said on Tuesday that the Consumer Price Index for All Urban Consumers increased 0.5 percent in June. The gasoline index rose sharply in June and accounted for about two-thirds of the seasonally adjusted all-items change. Over the last 12 months, the all-items index increased 1.8 percent.

Take the volatile prices of food and energy out of the CPI—to get the so-called core rate of inflation—and the increase was a more modest 0.2 percent in June, exactly the same as in May. Over the last 12 months, the increase for the CPI without food or energy has been 1.6 percent.

Both the all-item and the core rates of inflation are below the Fed’s target of 2 percent, and defy the expectations of economists who believe the Fed’s long-standing stimulus of the economy is bound to cause inflation. If the central bank decides to continue QE3 rather than taper, it will be hard to make the argument that inflation will become like the raging jungle cat it was in the 1970s, since it’s been behaving more like a timid house cat during the latest round of bond-buying by the Fed.

Industrial production rises in May

The Federal Reserve reported on Tuesday that U.S. industrial production increased 0.3 percent in June after having been unchanged in May, pointing to the continued health of the domestic manufacturing sector. For the second quarter as a whole, industrial production moved up at an annualized rate of 0.6 percent.

At 99.1 percent of its 2007 average, total industrial production was 2 percentage points above its year-earlier level in June, the central bank also said. The rate of capacity utilization for total industry edged up 0.1 percentage points to 77.8 percent, a rate that was 0.1 percentage points above its level of a year earlier but 2.4 percentage points below its long-run (1972–2012) average.

After a run of positive days, Wall Street finally had a negative day on Tuesday, though the drops weren’t that steep. The Dow Jones Industrial Average lost 32.41 points, or 0.21 percent, while the S&P 500 was down 0.37 percent and the Nasdaq off 0.25 percent.

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