The first data point Wednesday morning was the Housing Starts data showing a significant decline of 22.5%, which I believe is the worst in 2-years. Bloomberg said the following after the release Housing starts fell back in February after an unexpectedly strong showing in January. Mostly, it was a partial reversal of the earlier spike in the multifamily component but single-family starts weakened significantly. Housing starts in February dropped a monthly 22.5 percent after jumping 18.4 percent the prior month. The February annualized pace of 0.479 million units was sharply lower than the median forecast for 0.560 million units and is down 20.8 percent on a year-ago basis. The February reversal was led by a monthly 46.1 percent drop in multifamily starts, following an 87.4 percent surge in January. The single-family component fell 11.8 percent in February after edging up 1.4 percent the prior month.
Although that was a bad report, the PPI was even worse. PPI stands for Producer Price Inflation and it is red hot. The consensus for this report was too low as usual: the number came in more than twice as high as expected at 1.6% for February.
Because price levels bounce around a lot from month to month it wouldn’t be fair to annualize this report (although when appropriate the government will do exactly that to make rotten data sound better); however, it would be fair to annualize a quarterly series of data. The last 3 months of PPI level inflation come to 3.3% that annualizes to a scary 13.2%.
Remember, this is producer level inflation so you haven’t seen it priced into consumer products yet. But don’t worry folks; the Fed says there is no inflation…none at all.
In a recent trip to Queens, New York, where William Dudley of the FRBNY championed the fantastic work that everyone at the Fed was doing, he got an earful. You see, the Fed is on a media campaign to sell the average guy on the miracle of QE and FALLING prices, but the average guy isn’t buying.
In his trip to Queens, Mr. Dudley was asked why prices of everything are going up yet the Fed continues to claim that there is no inflation. His answer "Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful," he said. "You have to look at the prices of all things."
As I said, the average guy isn’t buying what this clown is selling, which Reuters reported "prompted guffaws and widespread murmuring from the audience," with someone quipping, "I can't eat an iPad." Another attendee asked, "When was the last time, sir, that you went grocery shopping?"
Since the Fed doesn’t give a damn about you, your family, or your rising price issues, nothing will change. In fact, they’re almost assuredly going to get worse. The Japanese calamity is exactly the cover the Fed will use to (eventually) begin QE3.
Trade Date: 3/16/11
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