The Wall Street Journal

Wholesale Prices Dropped in September on Lower Energy Costs

Home building rose a third time in four months during September, reflecting higher sales this year, but the increase was smaller than expected as the government tax credit that’s helped drive demand nears its end.

Separately, lower energy prices pushed U.S. wholesale prices lower in September, leaving a larger-than-expected monthly decline in the producer price index.

Housing starts climbed 0.5% to a seasonally adjusted 590,000 annual rate compared to the prior month, the Commerce Department said Tuesday. The report also said building permits fell and August starts were revised down.

Economists surveyed by Dow Jones Newswires forecast a 2.0% increase in September starts, to an annual rate of 610,000.

The housing sector remains subdued as it struggles out of a three-year bust that saw sales and prices plunge. Year over year, housing starts in the U.S. were 28.2% lower than the pace of construction in September 2008.

August groundbreakings fell by 1.0% to 587,000, adjusted from an originally reported 1.5% increase to 598,000.

With new-home sales up 30% through August from a January bottom and inventories falling, construction in 2009 has climbed. A catalyst for the higher sales is an $8,000 tax credit for first-time home buyers. However, the subsidy is due to lapse next month; that could do to houses what the end of “cash for clunkers” did to cars. U.S. automobile sales slumped after the car-rebate program expired in August. “We’re seeing a similar hangover in housing thanks to the looming expiration of the “cash for cottages” tax credit,” Weiss Research analyst Mike Larson said. His remark was a response to a survey Monday by the National Association of Home Builders showing builder confidence in the housing market fell in October, the first drop since June.

Building permits in September dropped 1.2% to a 573,000 annual rate, Tuesday’s construction data showed. Economists had expected permits to rise by 2.8% to a rate of 596,000. August permits rose 2.8% to 580,000. Building permits are a sign of future construction.

Single-family housing starts in September compared to the prior month climbed 3.9% to 501,000.

Apartment construction — housing with two or more units — dropped 15.2% to 89,000. Within that multi-family category, groundbreakings of homes with five or more units were 23.5% lower.

Regionally, housing starts rose 7.1% in the South. Starts fell 5.5% in the Northeast, 1.8% in the Midwest, and 8.8% in the West.

 

Wholesale Prices Decline

The producer price index for finished goods fell 0.6% on a seasonally adjusted basis in September, the Labor Department said Tuesday, after rising 1.7% in August.

Last month’s fall was bigger than the 0.2% dip predicted by economists in a Dow Jones Newswires survey. PPI was down 4.8% from September 2008.

The data on wholesale inflation should give the Federal Reserve continued flexibility in trying to support the economic recovery given that core price pressures — which exclude volatile food and energy prices — also edged lower.

Core PPI fell 0.1% last month compared to August, versus expectations for a 0.1% increase. It was up 1.8% from a year ago.

Last week, a U.S. government report showed a rise in consumer prices in September but the 0.2% jump was smaller than the 0.4% rise registered for August. The slower pace suggests that inflation remains under control, which again, gives the Federal Reserve room to stay on hold and largely keep in place it’s agressive support for the economy.

Tuesday’s PPI data showed a 2.4% fall in energy prices in September after an 8.0% surge the previous month. The September decline in energy prices was led by falling gasoline prices, which moved down 5.4%. Falling prices for home heating oil and residential natural gas also contributed to the September decline.

Food prices were also down. They fell 0.1% in September. Prices of passenger cars rose 1.0% last month, while light truck prices fell 1.4%.

Prices of raw materials, known as crude goods, fell 2.1% on the month. Core crude goods prices increased 3.6%.

Intermediate goods prices rose 0.2% in September. Core intermediate goods increased 0.9%.