Housing and Import Prices


** Housing starts fell by less than expected, declining 5.9% to 575,000 in February. Single-family starts slipped 0.6%, while multi-family starts dropped 30.3%. The level of building permits was also higher than forecasts, as permits fell only 1.6% to 612,000 in February.

BOTTOM LINE: Given the extent of the storms in February, this is not a very weak report on housing construction. We still believe that housing starts and building permits bottomed in April last year and that housing construction is in a very gradual recovery mode. Housing construction is unlikely to contribute much to growth this year but we do not see it being a drag (housing construction subtracted 0.4 percentage points from growth in 2009).


** Import prices fell 0.3% in February, a slightly larger decline than consensus forecasts. Over the last 12 months, total import prices have risen 11.2%. Both nonpetroleum and nonfuel import prices increased 0.2% in February. Over the last year, nonpetroleum import prices have risen by 2.1% (versus 1.2% in January), while nonfuel import prices have posted a 2.0% increase on the same basis (versus 1.3% in the prior month).

BOTTOM LINE: Despite the firming of the dollar since November, ex-fuels import price inflation has picked up from -1.1% to 2.0% and overall import price inflation is in double-digits. There is no sign of deflationary pressures here. However, the dollar is not an explicit consideration for the Fed and we believe the majority at the FOMC will continue to focus on slack as the principle driver of inflation and monetary policy.

Source: RDQ


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