It may be a stretch to say the construction industry has a dozen lives, but it certainly has shown tenacity in the face of efforts to slow the economy. The Federal Reserve has engineered six rate hikes since June 1999, yet it has done little to dent the whack of hammers on nails. Nor has a huge jump in the price of energy been able to mute home-building activity. That brings us to Wednesday’s report of September housing starts. Economist Sung Won Sohn is looking for a slight uptick, to an annual rate of 1.55 million units, from 1.53 million a month earlier. “The trend in housing is certainly down, but mortgage rates have fallen a bit, and that is supporting the market,” said Sohn, of Wells Fargo & Co. in Minneapolis. He said the demand remains huge for affordable housing, homes that cost less than $150,000. Also, builders are finding workers, including plumbers and carpenters, more readily available. About the only negative for the industry is that expensive homes costing more than $300,000 are taking longer to sell, he said, “because the people in high-income brackets are growing more cautious.” What happens next, Sohn said, will depend on the situation in the Middle East, “and whether the costs of petroleum and home heating fuel go through the roof.”
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CONSUMER PRICE INDEX
MIDEAST WOES BOOST COSTS
An abiding faith that inflation can’t harm the economy was shaken last week by the violence in the Middle East, which helped spike the price of oil in the direction of $40 a barrel. Adding to the concerns was Friday’s report on wholesale prices, which leapt 0.9 percent in September. Anxiety could increase Wednesday, with the September consumer price index. Expect a rise on the order of 0.5 percent, with some of the blame falling on Detroit, which has been able to engineer modest increases in the stickers of cars and light trucks.
TRADE DEFICIT
U.S. STILL OUTPERFORMS
Economists are hoping that a gradual slackening of demand from spend-happy consumers will someday shrink the intractable trade deficit. But don’t look for much improvement Thursday, with the report for August. Economists at Banc of America Securities are looking for a drop to $31.5 billion for the month, barely less than the record $31.9 billion in July. Analysts said the rip-roaring U.S. economy continues to outstrip sluggish activity in the rest of the globe.
EQUITIES
OCTOBER VOLATILITY PERSISTS
The stock market has made it halfway through October, but not without double the normal helping of spooky, seasonal volatility. A modest rebound on Friday sparked speculation that the worst may be over on Wall Street, but Chicago investment manager William Hummer believes investors “must remain cautious, even skeptical.” Hummer, of Wayne Hummer & Co., said he anticipates that “going forward, we will see a further stream of negative earnings surprises.” He said the slowing economy, along with rising costs, “create a double whammy for corporations. Sales volume is shrinking, at a time when it is very difficult to raise prices.” Hummer’s bottom line is that next year’s profits will rise by only 3 percent to 5 percent, down from double-digit gains this year–hardly sufficient to satisfy investors’ outsized performance expectations.