Tuesday, September 19, 2006

 

August 2006 U.S. Housing Starts and PPI

According to the service I use for economic numbers housing starts were expected down 2.5%. It just came in at -6.0%. Also, the core (minus food and energy) producer price index was expected to be +0.2% came in at -0.4%. Both numbers indicate deflation and a weak economy.

The stock and debt markets initial reaction was to rally. I guess if you take what you want out of this news there are reasons for this. Weak economic news and low inflation is bullish for debt. No inflation means the Fed won't be raising rates so stocks rally. It is the same scenario I discussed before. The stock market is driven by the performance of competing assets. In the long run you still need an economy to grow so that companies make profits but that doesn't seem to be what is on the mind of the stock market today. Who ever said this thing was rational? More later.

Update 11.38 am:

Stocks have turned lower. I guess traders actually thought about the implications of what a crashing housing market means; stupid traders. I shouldn't say crashing. Housing starts have a long way to go before they reach levels seen at during past recessions.

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