Economy Watch: Housing Starts Drop in January

By Dees Stribling, Contributing Editor

The Census Bureau reported on Wednesday that housing starts took a dip in January. The annualized rate was 890,000 units during the first month of the year, which was 8.5 percent lower than December 2012’s annualized rate of 973,000 units. Still, the January 2013 rate is 23.6 percent higher than during the same month a year earlier.

A downward swing in multifamily starts, which tend to be volatile anyway, caused the overall dip. Single-family housing starts, by contrast, actually edged up in January 2013 month-over-month by 0.8 percent, to an annualized rate of 613,000 units.

Residential building permits, which are a forward-looking indicator of U.S. housing activity, were up in January by 1.8 percent, compared with December. Compared with January 2012, permitting expanded a sizable 35.2 percent, which is another measure of the strength of the housing recovery last year. Single-family permits were up 1.9 percent month-over-month in January.

FOMC more optimistic, but not enough to slow QE3

The Federal Open Market Committee released its Jan. 29-30 meeting minutes on Wednesday, and it seems (though it’s hard to tell exactly) that the Fed is more optimistic—modestly more—about the economy now than during recent months. The minutes spelled it out by saying that “participants saw the economic outlook as little changed or modestly improved relative to the December meeting.”

The committee also noted that the housing sector was strengthening—with the support of cheap debt—and the unemployment rate “appeared likely to continue its gradual decline.” Moreover, no worries about inflation, explaining that the economic beast that so troubled the nation in the 1970s (when the central bankers were all young bankers) would, over the medium-term, run at or below the committee’s 2 percent objective.

Will QE3 continue? For now. But some members of the committee seem to be thinking about modulating the quantity of assets the Fed buys, and at what rate. “Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved,” the minutes explained.

PPI up in January

The U.S. Department of Labor reported on Wednesday that wholesale prices were up in January, as reflected by its Producer Price Index, which gained 0.2 percent month-over-month. That’s a turnaround from December, when the PPI was down 0.3 percent, but not considered a sign of incipient inflation. Food, up 0.7 percent for the month, drove the increase, with vegetables in particular spiking because of a delayed harvest in California.

Energy price increases were fairly tame in January, and in fact dropped 0.4 percent for the month. But the recent and hard-to-explain spike in gasoline prices will probably have an impact on next month’s PPI report.

Wall Street gave back on Wednesday most of what it gained on Tuesday, with the Dow Jones Industrial Average down 108.13 points, or 0.77 percent. The S&P 500 was off 1.24 percent and the Nasdaq lost 1.53 percent.