Housing Starts, Producer Prices Strong

Dec. 20, 2005 — -- Two significant economic reports released by the government this morning showed unexpected positive news for the economy.

The Commerce Department said housing starts rose 5.2 percent in November to an annual rate of 2.123 million units. Economists had expected a much smaller increase to just 2.023 million. The October number was revised upward slightly.

In another report, the Labor Department reported that wholesale inflation took a dive during November, with producer prices dropping by 0.7 percent. That's significantly more than the expected 0.3 percent reduction and was driven primarily by a big drop in energy prices during the month. This is the biggest monthly reduction in producer price index in 31 months.

What does it mean? Both indicators are signals that the economy is fairly robust.

The housing market continues to defy the odds, showing surprising strength despite hefty increases in the cost of mortgages. According to Freddie Mac, the average 30-year fixed-rate loan comes with a 6.30 percent rate, up from 5.68 percent a year ago.

This comes as wholesale prices take a tumble. Gasoline, natural gas and crude oil (all major "inputs" for American manufacturing) saw steep reductions in price during November. Prices excluding energy and food prices -- the so-called "core" rate -- ticked up just 0.1 percent, much less than expected. This could be a signal that the Fed will take a break in rate hikes at its next meeting at the end of January.