SIGNS OF DEFLATION CREEP UP, HOUSING STARTS WEAK

Despite solid earnings from Apple & Caterpillar the stock market is choosing to ignore earnings for a moment while some more worrisome data hits the market.  Housing starts were weaker than expected this morning.  The strong negative seasonal trends are certainly taking hold of the housing market in late 2009.  Econoday has the the details:

Housing starts look positive in September from August but not after taking into account a downward revision to the prior month. Housing starts in September rose 0.5 percent, following a revised 1.0 percent decline in August. The September pace of 0.590 million units annualized was down 28.2 percent year-on-year and fell short of the consensus forecast for 0.615 million units. Importantly, August was revised down from 0.598 million units to 0.587 million units annualized. The advance in September was led by the single-family component which increased 3.9 percent after dropping 4.7 percent the month before. In contrast, the single-family component fell 15.2 percent after rising 20.7 percent in August.

Some signs of deflation crept back into the market as PPI data showed a -4.7% year over year change.  This persistent pricing weakness is perhaps the greatest sign of the underlying weakness of the real economy.  End user demand is simply not strong enough to provide producers with any sort of pricing power.

The best news of the day comes from the consumer where the recently positive trend in retail sales showed further signs of improvement.  Redbook same store sales posted a 0.5% year over year improvement and the ICSC retail sales data came in at 2.8% year over year and 0.2% week over week.

All in all this data shouldn’t be enough to put a real scare in the market.  With energy prices soaring we could easily see a sharp jump in future inflation figures and the weakness in housing is being viewed as a blip on the radar rather than a developing trend.