Economic Update

The latest economic data shows the economy moving forward with modest momentum.

• The good news:
  • Industrial production rose 1 percent in July, a solid gain that was distributed broadly.
  • The producer price index rose 1.3 percent in July – including a rise of 0.3 percent in the core PPI – thus providing ammunition against those predicting intractable deflation.
  • Housing starts rose by 1.7 percent in July.

• The bad news:
  • The increase in housing starts was concentrated in multi-family (“rental”) structures; starts of single-family homes fell by 4.2 percent.
  • New housing permits fell by 3.1 percent in July, including a 1.2 percent falling in permits for single-family homes.

The future of the housing market is key to interpreting the outlook. 

• The housing data were mixed, especially across different parts of the economy. 
• Single-family housing starts rose strongly in the Northeast and Midwest, but fell elsewhere. 
• Permits rose in the West, were flat in the South, but fell elsewhere.
• If the housing market is roughly at the bottom, then it will no longer be a drag on growth and may contribute modestly going forward.  The downside risk is that a continued fall in housing will spill over to weakness elsewhere in the economy. 

The bottom line: The recent data shows some strength.  To the extent that housing is done falling, growth will continue at a modest pace.  The mixed evidence from different indicators and areas of the country suggests that this is the case.