Economist's Commentary: August 19, 2008

Quick Take on the Economy: August 19, 2008

By Danielle Hale, Research Economist

Like the Consumer Price Index released last week, the PPI advanced much more than economists had expected. The PPI rose 1.2 percent in July, following a 1.8 percent increase in June. The 0.7 percent increase in finished goods other than energy and food (which are considered separately because of their volatility) indicates that price increases are widespread.
The PPI has risen 9.8% from July 2007 to July 2008 after rising 9.1% from June 2007 to June 2008 making these two 12-month periods the most inflationary since July 1981-towards the end of the great 1970s inflation.
One bright spot for REALTORS was the rise in prices received by real estate agents and brokers which turned up in July after falling in the June.

Single family housing permits declined 5.2% from June to July, and single family housing starts were at a rate of 641,000 which is a slight decline from June's rate of 660,000.
Single family housing starts are now at a level last seen in 1982 and will continue to put a damper on GDP growth.

The FOMC is still being pulled in different directions by the data. Today's price information will shift the focus to inflation but the housing data draws attention to the continued weakness of the economy. We can still expect the Fed to keep the Fed Funds rate at 2.0% at the next meeting on September 16, but the pressure for a rate increase is intensifying.
Continued slowing in housing permits and starts, while not great for GDP growth, is a good thing for Realtors® and home owners because it helps to curtail the supply of houses for sale. Supply that is reduced by building cutbacks and demand that is stimulated by the first-time homebuyer tax credit will help prices stabilize and eventually foster more sales.

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