Producer Price Index

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights PPI and the Home Builder's confidence index.

• A sharp increase in the cost of finished energy goods in September caused the producer price index (PPI) to jump 0.8%.  However, finished goods excluding food and energy, which tend to be volatile, was up only 0.2%.  Of greater concern is that the index for core intermediate goods rose 0.6%, more than offsetting the 0.5% decline from a month earlier.  This portion of the index has a strong correlation to core inflation in the CPI index, which can affect mortgage rates.
• Home builders’ confidence surprised on the upside this morning as it jumped 4 points to 18 from 14.  This is the strongest gain in more than a year.  Builders had even stronger expectations for sales over the next six months which jumped from 17 to 24.  While the index remains historically low, the improvement in builder confidence suggests that declining inventories in some markets are leading to pockets of strength.  Gains in the West led the index.
• Strong increases in fuel costs drove up producer prices in September, but those have since fallen, a trend that should provide lift to consumers.  Core prices lurched upward this month, a move that might place upward pressure on mortgage rates in the longer term, but could also prove be an anomalous event.  The increase in builder confidence is more important.  As builders have eyes on the ground and a stake in monitoring local inventories, the modest upward trend in builder confidence bodes well for green shoots of core demand in some markets.