Housing Starts

This is, of course, the joint US Census Bureau and US Department of Housing and Urban Development survey of new residential construction. It has a one-month lag, so we'll be looking at February.

January was a good month. Expectations were beat with 596,000 new homes starting construction (413,000 single-family and 171,000 buildings with five or more units), 562,000 residential building permits issued, and 512,000 residential buildings completed. For February, the Econoday-surveyed analysts are expecting a mild decline to 560,000 new homes starting construction.

And the actual results? Well, according to the report, we came in with an expectations-missing 476,000 new homes started This is particularly disappointing, since January's starts were revised upwards to 618,000. Of those 476k new starts, 375,000 were for single-family units and 96,000 were for buildings with five or more units. 517,000 residential building permits were issued, and 581,000 residential buildings were completed.

Housing Gets Started, Unemployment Insurance Gets Claimed, And Spain's Pains Stay On The Plains

We've got some stuff happening today. About an hour ago, Housing Starts and Jobless Claims came out. Then, at 10 AM, we get the Philadelphia Fed Survey. Busy, busy day. And that's not even considering President Obama's tax cut "compromise" going to the House today[1], or FedEx (FDX) second-quarter profits missing expectations.

Last month, we had a heartily disappointing 519k new Housing Starts in October (we were expecting 590k). For this month, the Street is looking for 550k new starts. Meanwhile, last week, we saw 421k new jobless claims for the week ending 12/4 (marginally better than the 425k that had been predicted), and the Street is going conservative and predicting a mild improvement to only 420k new claims,

The reality is slightly better than expected. Housing starts for November hit 555k, beating the revised October figure of 534k (yes, the final number was revised upwards) by 3.9%. 465k of those were single-family homes, while only 72k were buildings with five units or more. 513k privately-owned housing units were completed in November (up 14.1% from October) and 530k new building permits were issued (up 4%). the bulk of these were in the region the Census Bureau describes as "South", so I guess that makes sense.

Turning to the First Time Jobless Claims, we came in at 420k new claims for the week ending 12/11, down 3k from the previous week's revised figure of 423k. Yes, that's right. The 12/4 421,000 new claims were revised upwards, meaning more people lost their jobs than was originally reported. Iowa and Idaho came out the best (they had a decrease in the number of claims), while 30 states had more than 1000 new claims (New York was worst off at +16,863, with North Carolina, Pennsylvania, and Georgia hot on it's heels with over 15k new claims each).

Combine all of this with the fact that Spain hasn't taken Europe's economy down in flames yet, and it shapes up to pretty good news for the morning.

[1] I'd expect it to be DOA. But I expected that when it hit the Senate as well, so now it's a wait-and-see game.

Stocks little changed as banks offset retail stocks

By Leah Schnurr
NEW YORK (Reuters) - Stocks ended little changed on Wednesday with indexes unable to recoup recent losses as banks wilted on worries about Federal Reserve regulation of the sector going forward.

Indexes also suffered from the continued uncertainty of Ireland's financial crisis, which contributed to Wall Street's drop of nearly 2 percent on Tuesday.

"I think the market is in a deterioration trend. It's worrisome at this point, considering that we had a selloff yesterday with pretty big volume and poor advance-decline numbers," said Frank Gretz, market analyst and technician at the Shields & Co brokerage in New York.

"The market is certainly vulnerable, and I think it is in fact headed for a correction."

Financials sagged after the Federal Reserve said it will allow some banks to increase dividends but would also evaluate the ability of 19 large institutions to withstand losses in "adverse" economic scenarios.

The KBW bank index gave up 1.4 percent. Regional bank KeyCorp (KEY:$7.6800,$-0.3000,-3.76%) slid 3.8 percent to $7.68 after Credit Suisse downgraded its shares.

Volume was light and some of the day's quietness was due to investors awaiting the pricing of General Motors' initial public offering after the market's close, said Nick Kalivas, senior equity index analyst at MF Global in Chicago.

The automaker set the terms for a landmark IPO that could be the largest in U.S. history, raising up to $22.7 billion.

"There's a feeling a lot of money has been sucked out of the market to go pay for that. Once that gets out of the way, that theory's going to be put to the test," said Kalivas.

The Dow Jones industrial average was off 15.62 points, or 0.14 percent, to 11,007.88. The Standard & Poor's 500 Index edged up 0.25 point, or 0.02 percent, at 1,178.59. The Nasdaq Composite Index added 6.17 points, or 0.25 percent, to 2,476.01.

Retailers kept a floor under the market as discount chain Target Corp (TGT:$55.6200,$2.0800,3.88%) rose 3.9 percent to $55.62 after it forecast its best same-store sales in three years during the upcoming holiday season. The S&P consumer discretionary group rose 0.7 percent.

Investors kept a close eye on the situation in Ireland. Dublin agreed to work with a European Union-International Monetary Fund mission on urgent steps to shore up its shattered banking sector, a process that could lead to a bailout despite Ireland's deep reluctance.

The CBOE Volatility index , Wall Street's so-called fear gauge, declined 3.6 percent but remained above 20. On Tuesday, it closed at its highest point in more than a month.

In the latest U.S. economic data, housing starts slumped to their lowest level in more than a year in October, while consumer prices rose, but the annual increase in core CPI was the smallest on record.

(Reporting by Leah Schnurr; Additional reporting by Angela Moon; Editing by Kenneth Barry)

The Envelope, Please...

The numbers are now in, so let's see how things shape up.

First off, CPI. Remember how we were looking for a 0.4% increase (0.1% core increase)? Well, the official report shows only a 0.2% increase (and no change in the core). The good news here is that inflation didn't destroy as much of your wealth in October. The bad news is that fuel and electricity hurt your pocketbook. But we beat expectations, and the Street likes that sort of thing. If you want to drill into the details, you can find them on the Bureau of Labor Statistics Consumer Price Index page.

Housing starts got beat like a jobber, though. We were looking for 590,000 new starts for October, and we only saw 519,000. That's... well, that's not great. But we did see a 1% increase in building permits, so things are looking up for future months. More details can be found on the US Census Bureau's website.

CPI and Housing Starts

What is on the agenda for the day? CPI and Housing Starts, that's what's on the agenda.

The CPI, also known as the Consumer Price Index, represents... well, not to put too fine a point on it, it represents inflation. The CPI looks at how much buying power your salary has lost the previous month. Ahem. I mean, it looks at how much the cost of a fixed basket of goods and services that consumers would purchase has increased. While the "core" CPI looks at exactly the same thing, except that it cuts out volatile components of the basket like food and energy. Because, after all, how important are food, electricity, and gas to consumers? Really?

Anyway, CPI increased by a meager 0.1% in September while core CPI did not change in the slightest. The analysts aren't so optimistic for October; they're calling for a 0.4% increase, with a 0.1% increase in the core.

Why should you care? Well, it all gets back to that "two-thirds of GDP is driven by consumer spending" concept. If prices go up, consumers are able to buy less, and overall consumption goes down. This has a negative effect on GDP, particularly from a Keynesian economic perspective: spending good; savings bad [1].

Housing Starts are, well, exactly what they sound like. They're the number of residential construction projects that have broken ground during the month. September saw 610,000 starts. The analysts are expecting only 590,000 starts for October; that makes a certain amount of sense to me, given that it's October we're talking about here. That doesn't strike me as prime building season in the temperate climate most of the United States calls home.

But why should you - indeed, anyone - care? Three words: trickle down economics, baby. It's called voodoo economics when a President proposes it through tax cuts, but it's solid economics when it comes to home construction. Building a new house needs lumber, and copper pipe, and drywall, and paint, and shingles, and insulated copper wire, and a thousand other things. Then there's carpet, hardwood flooring, tiles, and appliances. Then, when the house is sold there's new furniture, lawn care products, insurance, and all the various and sundry things that transform a house into a money pit... I mean into a rapidly devaluing investment. Damnit, I mean into a home.

[1] Grossly simplified, actually, but correct in broad strokes.

Wrapping Up A Miserable Day In The Market

As of right now, I'm sitting here looking at

• A Dow down 178.47 (1.59%)
• A NASDAQ down 43.98 (1.75%)
• A S&P 500 down 19.41 (1.62%)

That's pretty sad. What drove it? Funny as it would be to blame Apple's partnership with the Beatles, that's not really it. So what is? Well, here's some highlights from today's news:

• Ireland, one of the PIIGS, is unwilling to accept a bailout for it's financial system.
• In comedic counterpoint to the above, some EU members are unwilling to give a bailout.

(And does anyone else hear the dynamics of an elementary school in this? "I don't wanna bailout!" "Yeah, well we don't wanna give you a bailout!" "Yeah? Well I didn't want it first!" "Did not!" "Did too!")

• Austria is threatening to withhold the next tranche of bailout funds from Greece, unless Greece gets back to following it's deficit-cutting plan.

(Accountability. The horror!)

• China is requiring banks to increase their capital reserves, and is tightening up it's lending policies.

So yeah, the pain is all about the financial sector. Still. That seems an ill omen for tomorrow's CPI and housing starts figures (analysts are already looking for a 0.4% month-over-month increase in CPI, and a 20k drop in housing starts). Brace yourself.