Housing Permits, Producer Prices & Retail Sales Wallop Stocks

Weaker housing permits, higher producer prices and softer retail same-store sales combined to wallop stocks today.

"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, global financial markets, real estate, shipping, fine art, technical analysis and global affairs.

(Tickers: NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

Housing Permits, Producer Prices & Retail Sales Wallop Stocks

After a gap open higher to start trading, the Dow has since retrenched. Early economic data seemed solid enough, but once economists and traders got below the surface, something else became clear. Weaker housing permitting activity, higher producer prices and softer retail sales combined to wallop stocks today.

Housing Starts (April)

Housing Starts jumped 5.8% in April, to an average annual pace of 672K, versus March's starts pace of 635K. Recent graduates with real estate degrees had better keep their caps on though, as April's gain was almost certainly driven by the deadline for First-Time Homebuyers Tax Incentive. That special reason to start a household is going away now, and the pace of Building Permitting activity may already reflect it. Building Permits authorized for new households ran at an annual pace of 606K; that's 11.5% down from March's rate of activity.

Still, while we might not have much to look forward to in the near-term, we have come a long ways from last year. Housing Starts were up 40.9% over April 2009, and Building Permits stood 15.9% higher. April's Housing Completions were pretty solid as well, with those rising 19.2% in April, to a pace of 769K. Still, that's a backward looking metric.

Regionally speaking, the Northeast continues to post the best results in real estate of late. The Northeast region saw a 23.9% increase in starts, but only a 5.3% increase in single unit properties. Both these would still benefit from the tax incentive, because it is not earned by the developer but the purchaser of the home. The developer is still selling units in his multi-unit building, driving starts. The Midwest saw a 16.7% increase in starts, while the South region posted a 7.0% increase. The West, however, reported a decrease of 13.3%.

The news was generally reported as a strong positive for the economy, but the savvy market quickly discounted the concluding tax incentive after absorbing the poor permit data. Thus, markets will wait a few months and test data a bit more before betting on home building again.

Producer Prices (April)

The Producer Price Index (PPI) was reported this morning for the month of April. Wild swings characterized February and March headline price change, driven by commensurate changes in energy prices. This latest month though, saw just a 0.1% decrease in the Headline PPI, even as energy prices (index) fell by 0.8%. The Food Index was also lower in April, dropping by 0.2%. Therefore, the Core PPI, the index we care about most since it excludes volatile food and energy prices, rose 0.2%. The Core price increase exceeded economists' expectations for a 0.1% rise. That's generally bad news, and feeds into inflation fears.

Prices on the crude goods level actually dropped by 1.2%, but a longer term trend of increase still drove intermediate goods prices higher by 0.8%. Most concerning, finished goods prices increased 5.5% over the past 12 months (0.2% in April on Core). We explained yesterday though, that much of this price increase was simply offsetting price decreases that occurred when economic demand for goods declined through economic trough. That said, I feel there's good enough reason to start worrying about inflation now, given money supply and the credibility of sovereign entities (or lack of it). Meanwhile, prices did not really drop on the finished goods level through economic decline; in other words, they remained somewhat anchored as market participants expected economic revival to renew strong demand for resources.

Weekly Same-Store Sales

The International Council of Shopping Centers (ICSC) reported same-store sales for the week ended May 15. The data was shocking, as weekly sales dropped 2.5%, and the 2.9% year-to-year sales increase was the slowest pace since February. The drop was attributed to cold weather, which I guess could be true. I guess we could argue that in spring, as people get use to warmer weather, a swift drop in temperature can have an impact on traffic. A lot of us packed our winter clothes away, and then found ourselves ill-equipped to handle the chill last week. Only time will tell, when next week's data is reported.

Corporate News Drivers

Wal-Mart Results

Speaking of sales, many major retailers report EPS results this week. Wal-Mart (NYSE: WMT) is one of them, and the biggest. Wal-Mart reported quarterly results today, posting Street beating numbers, but its US same-store sales were not the driver. So, while WMT shares move higher today, we still have to wonder what the weaker than expected sales numbers portend for the broader economy.

Same-store sales fell 1.4% at Wal-Mart's US stores open at least a year. The company noted that the use of food stamps and other government subsidies is up substantially at its stores. The company was only able to beat estimates for $0.85 a share, posting $0.88, through cost reductions and thanks to overseas sales growth.

Corporate Events & EPS

Aflac (NYSE: AFL) and Cardinal Health (NYSE: CAH) held analyst meetings today. IPO lockup restrictions expire for Archipelago Learning (Nasdaq: ARCL), Cloud Peak Energy (NYSE: CLD) and Global Defense Technology (Nasdaq: GTEC).

EPS reporters include TJX (NYSE: TJX), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), 7 Days Group (NYSE: SVN), Abercrombie & Fitch (NYSE: ANF), Analog Devices (NYSE: ADI), Ambac Financial (NYSE: ABK), Astro-Med (Nasdaq: ALOT), China GrenTech (Nasdaq: GRRF), China Nepstar Chain Drugstore (NYSE: NPD), China Precision Steel (Nasdaq: CPSL), China Ritar Power (Nasdaq: CRTP), Chipmos Tech (Nasdaq: IMOS), Dick's Sporting Goods (NYSE: DKS), EDAP TMS SA (Nasdaq: EDAP), Encorium Group (Nasdaq: ENCO), EntreMed (Nasdaq: ENMD), First Community Bank (Nasdaq: FCFL), Gushan Environmental (NYSE: GU), Kirkland's (Nasdaq: KIRK), Optibase (Nasdaq: OBAS), Photronics (Nasdaq: PLAB), Saks (NYSE: SKS), Senesco Tech (AMEX: SNT), Simcere Pharma (NYSE: SCR), Skystar Bio (Nasdaq: SKBI), Sypris Solutions (Nasdaq: SYPR), Tengion (Nasdaq: TNGN), Tsakos Energy Navigation (NYSE: TNP), Vodafone Group (NYSE: VOD), Westell Tech (Nasdaq: WSTL), Wuhan General Group (Nasdaq: WUHN) and Zanett (Nasdaq: ZANE).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.