July Housing Starts, Producer Prices Down

July Housing Starts, Producer Prices Down
By Frank Ahrens
Copyright by The Washington Post
July 18, 2009
http://voices.washingtonpost.com/economy-watch/2009/08/july_producer_prices_housing_s.html?hpid=topnews


Two key economic indicators were released moments ago and they continue to paint a picture of a sluggish economy trying to slog its way out of recession.

In the first number, July housing starts were down 1 percent in July compared to June, which means builders are backing off their enthusiasm for putting up new housing.

This comes after a June that saw housing starts rise 6.5 percent compared to May, so this is a definite retracement and a big disappointment: Forecasters expected housing starts to rise 3 percent last month.

In the second number, the Producer Price Index -- the prices paid by people who make the stuff we buy -- was down .9 in July, compared to an increase of 1.8 percent in June, the Labor Department said. If you take out the volatile food and energy prices, core PPI was down .1 for July.

Producer prices -- the price of products before they reach store shelves -- was down a whopping 6.8 percent over the past year, which is worrisome. It marked the biggest decrease in more than 60 years of record-keeping.

PPI is the best indication of future Consumer Price Index, or the best measure of inflation, meaning rising prices. The CPI released last week hinted at least disinflation and possibly deflation, which is one of the worst things that can happen to an economy -- its sustained contraction, when prices and wages fall hand-in-hand, as happened in the Great Depression.