The folks at TrendMacrolytics have been advising for some time now that the economy will “reaccelerate” and inflation isn’t as tame as some think. This morning’s updates on housing starts and producer prices lend support to this contrarian view of things to come. Does that mean it’s no longer a contrarian view?
In any case, housing starts climbed 6.7% last month, the Census Bureau reported today, reversing some of the pain from October’s 13.7% collapse. Even so, November’s housing starts are still off more than 25% from a year ago. And there’s no getting around the fact that last month’s annualized 1.588 million starts, along with October’s 1.488 million, are the lowest in one-two punch in several years. If nothing else, today’s report proves once again that dead cats do indeed bounce. The question is whether the kitty has any more jumps up his paw?
While you’re chewing on the implications, add this to today’s menu of economic consumables: producer prices in November rose 2.0%–the highest monthly gain since 1974. The core rate of change in PPI last month wasn’t quite the record that top line PPI was, but it was close. Indeed, the 1.3% surge in core producer prices in November is a height that’s rarely attained.
The change in the prevailing price winds last month comes as stark contrast to the back-to-back declines in PPI. What caused November’s turnaround? We can start with the usual suspect: energy. As the Commerce Department advised in its press release on PPI today:
The upturn in the finished goods index was broad-based and led by prices for energy goods, which climbed 6.1% in November after declining 5.0% in October. The index for finished consumer goods excluding foods and energy rose 1.1% following a 0.8% decline in the previous month.
If any of this comes as a shock, the flabbergasted don’t reside at the offices of TrendMacrolytics. Back in October, the firm’s chief economist, David Gitlitz, warned on these digital pages that inflation would get worse before it gets better. At the time, some took issue with his outlook. Presumably, those willing to argue with Gitlitz are slightly fewer in number today.
Meanwhile, Don Luskin, chief investment officer at TrendMacrolytics, yesterday wrote in a note to clients:
We have steadfastly maintained that the economy would reaccelerate in the fourth quarter, and that all growth surprises would be on the upside. Now, with a stream of surprisingly robust data over the last two weeks, it seems that we’ve been right, with retail sales and net import data pointing toward real GDP in the fourth quarter coming in above 3%.
Then again, the trend may reverse course yet again depending on the number du jour. Ours is a moment of transition, which wreaks havoc with smooth trend lines and calming economic reports. The past is gone and the future’s unknown; everything else is a guess. Getting from there to here and beyond, in short, is never easy. Amid the thankless task of finding the future by reading last month’s government release, the potential for stumbling is more than casual. Today’s oracle may be tomorrow’s jam-faced analyst. There’s only one truth and it will eventually out. In the meantime, the predictions are flying, and some look better than others. The trick is looking better in the long run.