High Energy Prices Plague Consumers

February 26, 2008--High energy prices continued to plague consumers as the Consumer Price Index rose 0.4% in January. The Conference Board's Index of Leading Indicators posted a small increase in January, lead by an increased monetary supply and gains in consumer confidence. A sluggish housing market continued in January, as existing home sales fell 0.4%, according to the National Association of Realtors. New housing starts increased 0.8% in January, but permits were off 3.0% for the month.

 

Consumer Price Index
The consumer price index rose 0.4% in January, driven by a 0.7% increase in food and energy prices. The core CPI, which excludes food and energy prices, inched up 0.3% for the month. On a year-ago basis, the top-line CPI has increased 4.4% while the core CPI is up 2.5%.

 

Conference Board's Leading Indicators
The Conference Board's Index of Leading Indicators fell 0.1% in January, following a 0.1% drop in December. Four of the ten components made negative contributions to the index, led by sagging stock prices. However, four of the 10 components made positive contributions, with an increasing monetary supply and a modest improvement in consumer confidence posting the largest gains. The index is currently at its lowest level since September of 2005, after posting four straight months of declines.

 

Existing Home Sales
According to the National Association of Realtors, existing home sales fell 0.4% in January. The median existing house price fell 2.9% and is down 4.6% from one year ago. The slowdown affects all regions of the country, with the West and South particularly hard hit. A weak housing market is expected this year, as continued concerns over credit quality and unstable financial markets will keep standards for mortgage underwriting high, thus keeping demand low.

 

New Residential Construction
New home starts increased, rising 0.8% to 1.012 million units at an annual rate in January. However, housing permits decreased 3.0% during the month. Compared to January of 2007, housing starts are down 27.9%. Though the housing market will remain soft, lower mortgage rates and recent surveys indicating a recovery of confidence in the housing market demonstrate that through the year conditions for home-buying will grow more favorable and that the bottom may be approaching for housing starts.