US CPI, Housing sentiment

The headline CPI number in the US increased 0.4% slightly less than the 0.5% increase expected in April. The core number was on target recording a 0.2% rise and bringing the annual gain down to a one year low of 2.3%. Some analysts registered surprise at the soft numbers pointing to the continued housing slump as the culprit. As far as interest rates are concerned it may relieve some pressure on the need to raise rates but it is hardly a case for rate cuts just yet as they remain above the comfort range of the Fed. Looking at the last three months the rate just sneaks into the Fed's comfort zone at 1.9%.

Speaking of housing, homebuilders confidence as measured by the National Association of Home Builders (NAHB)/Wells Fargo housing market index fell 3 points matching a 16 year low set in September 2006. These figures cast serious doubt over some economists assertions that we have passed the worst part of the cycle. NAHB's Chief Economist David Seiders commented:

"The crisis in the subprime sector has infected other parts of the mortgage market as well as consumer psychology, and as a result the housing outlook has deteriorated,"

Seiders went on to say that he doesn't expect any improvement in housing sales or production until late this year. Let's hope the "containment" and "past the bottom of the cycle" camp don't hear of David's blasphemy.


Above is some other interesting data released by the Fed on Monday showing that banks are clamping down on subprime lending and on so-called nontraditional loans such as interest-only loans, option adjustable-rate mortgages, and no-documentation mortgages. According to the Fed, at least 43% of domestic banks tightened their mortgage lending standards in 1Q07 up from 16% in 4Q06. As shown below this represents the largest tightening in the 17-year history of the survey.