A look at housing permits, inflation

Marketplace Staff May 18, 2010
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A look at housing permits, inflation

Marketplace Staff May 18, 2010
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TEXT OF INTERVIEW

Steve Choitakis: The government says the nation keeps building new houses. But any construction rebound could be brief. The Commerce Department says housing starts rose 5.8 percent in May. But building permits fell sharply. Meanwhile, another government report says wholesale prices pretty much stayed the same in April. Economists track inflation using the Producer Price Index — it fell a tenth of a percent. But taking food and energy prices out, prices went up slightly. What does it all mean? Peter Cohan heads up the firm Peter S. Cohan & Associates. He’s with us live from Massachusetts this morning. Good morning, Peter.

Peter Cohan: Good morning, Steve.

Chiotakis:Warmer weather is here. It’s the right time to build, I think. But permits were down, why?

Cohan: Well, I think it may have something to do with the face that there’s millions and millions of houses that are in foreclosure. And it puts a lot of pressure on the need for potential housing. As well as the face that the job market is still kind of in a slowly growing mode. And there’s still 8.5 million people unemployed, so the number of potential households that could buy those houses is maybe not keeping up with the supply.

Chiotakis:Hey Peter, how much does this have to do with the home buying tax credit expiring at the end of last month?

Cohan: Well, I think that has a lot to do with it. I think it has a lot to do with the fact that the housing starts were ahead of expectations. They were expecting 650,000. They got 672,000. And I think that the credit did have a lot to do with it and the expiration of the credit is going to keep the starts down until demand picks up with the supply.

Chiotakis:I want to talk quickly about wholesale prices. Why aren’t we seeing inflation?

Cohan: There’s excess production capacity out there. That means there’s more factory ability to produce units than there is demand for it. So as a result there’s not a lot of pressure to raise prices. Also wages. There’s a lot of pressure to keep those low. And the reason for that is there’s 8.5 million unemployed people out there and that keeps wages low and inflation low. And that means that the Fed can keep interest low and gold prices are falling because there’s not any evidence of inflation.

Chiotakis: Peter Cohan, thanks.

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