Headlines (Scroll down for complete stories):
1. Consumer Prices Fall; Core Inflation Up
2. Housing Starts Rise: Is the Sector Recovering Already?
2. Mortgage Applications Drop as Rates Rise
4. Social Security Payments Increase Just 3.3 Percent
1. Consumer Prices Fall; Core Inflation Up
Consumer prices, helped by big declines in gasoline and other energy products,
fell in September by the largest amount in 10 months.
The Labor Department reported that the Consumer Price Index dipped by 0.5
percent last month, which was better than the 0.3 percent decline that Wall
Street had been expecting. It was the biggest decline since a 0.7 percent fall
in November of last year and reflected a sizable 7.2 percent drop in energy
prices.
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In a further indication that price pressures are moderating, core inflation,
which excludes energy and food, edged up by 0.2 percent, the third straight
month of modest gains following higher readings earlier in the year.
In other economic news, construction of new homes and apartments posted an
unexpected gain of 5.9 percent in September to a seasonally adjusted annual rate
of 1.772 million units. Housing construction had fallen for three consecutive
months, reflecting the significant cooling of the once-hot housing market.
The bigger-than-expected decline in consumer prices should help reassure
investors that a slowing economy is helping to reduce inflation pressures
according to the script written by the Federal Reserve.
The Fed until August had raised interest rates 17 consecutive times over two
years in an effort to slow economic growth enough to combat rising inflation.
But it left rates on hold at the August and September meetings and analysts
believe they will also remain on hold at next week's meeting.
The 0.5 percent decline in consumer prices last month followed a 0.2 percent
August increase with the improvement coming primarily from the big drop in
energy costs.
Gasoline prices fell by 13.5 percent last month, the biggest one-month decline
since a drop of 16.1 percent last November, a period when prices were retreating
after having spiked sharply with the shutdown of Gulf Coast refineries following
Hurricane Katrina.
In a hopeful sign for the upcoming winter heating season, home fuel oil prices
fell by 6.1 percent, although natural gas and electricity prices were up for the
month.
Food prices rose by 0.4 percent last month with vegetable prices jumping 6.6
percent, the biggest increase since April 2005.
The government also announced Wednesday that the nation's nearly 49 million
recipients of Social Security benefits will receive a 3.3 percent increase in
their checks as a cost-of-living adjustment starting in January.
So far this year, consumer prices are rising at an annual rate of 3.4 percent,
matching the increase for all of 2005. Excluding food and energy, core inflation
has been rising at an annual rate of 3 percent, still above the Fed's comfort
zone of 1 percent to 2 percent.
However, economists believe with price pressures now moderating, the Fed will be
content to keep rates unchanged probably for the rest of this year.
© 2006 Associated Press.
Editor's Note:
2. Housing Starts Rise: Is the Sector Recovering Already?
Construction of new homes and apartments unexpectedly rose in September,
prompting the question, "Is the housing sector on the road to recovery?"
After posting three consecutive monthly declines, housing starts rose by 5.9
percent in September to a seasonally adjusted annual rate of 1.772 million
units, reports the Commerce Department. That's the biggest jump since January,
according to CNN Money.
Economists had expected housing starts to fall to 1.64 million units based on
the 1.665 million starts originally reported in August, says Reuters. The
Commerce Department revised upward August's housing starts to 1.674 million
units.
"The worst may be over," Rich Yamarone, director of economic research at Argus
Research, tells CNN Money. "No, it's not blistering. But we're not in the
housing boom anymore. When you put it in this historical perspective, you can't
call this anything other than strong."
CNN Money points out, "While the 1.77 rate is well below all the monthly
readings from the second-half of 2003 through the first half of this year, it is
still a solid number. Only one month in the 10-year period from 1992 through
2001 had more starts."
However, housing starts are down 17.9 percent compared to the same period last
year. At that time, housing starts were running at an annual pace of 2.158
million units. In addition, building permits, which are a gauge for future
building activity, fell for an eighth straight month in September, according to
the AP.
"Looking forward, what the permits suggest is that this bounce in housing starts
we have seen is going to be short lived," Rick Egelton, chief economist at BMO
Financial Group, tells CNN Money.
Permits plunged 6.3 percent to an annual rate of 1.619 million units. That's the
lowest level since October 2001 and down 27.7 percent from last September, notes
CNN Money. According to the news service, economists were looking for permits to
post a 1.702 million pace.
In addition, the inventory of homes on the market is still at record levels.
Just because homebuilders are building, doesn't mean that there are buyers. In
fact, the mortgage applications index for purchasing new homes is down more than
100 points so far this year, despite inching up last week, according to Reuters.
(See more below)
David Seiders, chief economist of the National Association of Home Builders (NAHB),
tells CNN Money, "If both permits and starts were up I'd be scared because I
think there are still inventory issues that we need to work through. I hope the
bounce in starts is a temporary phenomenon. I think it's inevitable that starts
will be down in October."
Editor's Note:
3. Mortgage Applications Drop as Rates Rise
Applications for mortgages fell 2.2 percent in the week ended October 13 to
585.8, hurt by rising interest rates, according to the Mortgage Bankers
Association (MBA). That's the second consecutive week of fewer mortgage
applications.
The decline was due to a fall in home loan refinancings as mortgage rates headed
higher. Applications to refinance a home dropped 5.3 percent to 1758.2 from 1857
a week earlier. Refinance applications are down 16 percent compared to a year
ago.
Mortgage rates have been rising for three weeks straight. For the week ending
October 13, a 30-year fixed-rate mortgage averaged 6.33 percent, 0.15 percentage
points higher than the September low of 6.18 percent, says Reuters. Rates on a
30-year fixed are up 6 basis points from last week and 24 basis points higher
than last year, according to Moody's Economy.com.
Rates on a 15-year fixed mortgage averaged 6.01 percent, up from 5.9 the
previous week. Rates on one-year adjustable-rate mortgages increased to 5.94
percent from 5.88 percent. The cost of an ARM is up 60 basis points in a year,
says Economy.com.
Reuters points out, "A three-week rise in interest rates has begun to choke off
loan refinancing opportunities that had lifted the MBA's mortgage applications
index to a nine-month peak of 633.9 in late September from 527.6 in July."
Applications to purchase a home inched up 0.4 percent as of October 13 from the
week prior. The purchase index rose to 384.7 from 383.3 a week ago. However,
purchase applications are down 24 percent compared to last year, indicating that
this bump is still part of a downward trend.
Editor's Note:
4. Social Security Payments Increase Just 3.3 Percent
Social Security checks for nearly 49 million Americans are going up by 3.3
percent next year, which will mean an extra $33 per month in the average check,
the government announced Wednesday.
The cost of living adjustment means that the monthly benefit for the typical
retired worker in 2007 will go from $1,011 currently to $1,044 next year.
The cost of living adjustment announced Wednesday by the Social Security
Administration will go to more than 53 million people. Nearly 49 million receive
Social Security benefits and the rest Supplemental Security Income payments
aimed at the poor.
The 3.3 percent increase compares to a 4.1 percent rise in monthly benefits for
2006, which had been the biggest increase in 15 years. Starting in 1975, the
benefit payments have been adjusted each year to keep up with inflation.
The COLA amount is based on the rise in the Consumer Price Index in the
July-September quarter of this year compared to the same quarter in 2005. The
Labor Department announced Wednesday that consumer prices actually fell by 0.5
percent in September, reflecting a big drop in energy prices.
While energy prices jumped sharply at the beginning of the year, reflecting
rising Mideast tensions, they have recently retreated to a level where they are
little changed from this time a year ago, when prices surged after Hurricane
Katrina knocked out oil production facilities along the Gulf Coast.
The average retired couple, both receiving Social Security benefits, will see
their monthly check go from $1,658 to $1,713.
The standard SSI payment will go from $603 per month for an individual to $623,
and from $904 to $934 for a couple.
The average monthly check for a disabled worker will go from $947 to $979.
The government also announced Wednesday that 11 million taxpayers will pay
higher taxes next year because the maximum amount of Social Security earnings
subject to the payroll tax will rise from $94,200 to $97,500. In all, an
estimated 163 million workers will pay Social Security taxes in 2007.
The $33 per month average monthly increase for Social Security retirees in 2007
compares to a $39 rise for 2006.
However, much of the 2006 gain was eaten up by a $10.30 monthly increase in the
payments retirees had to make for Medicare Part B insurance that pays for their
doctors' visits and outpatient hospital care. This year, that premium increase
is a smaller $5, driving the total premium to $93.50.
The wealthiest Medicare recipients will see much larger increases as part of
changes to the law passed in 2003 when the drug care benefit was adopted.
The higher payments will apply to about 1.5 million beneficiaries with incomes
of more than $80,000 annually. Many in this group will see their monthly
premiums for doctors' visits rise to $106. The premium could go as high as $162
for the very wealthiest.
The administration has said the monthly premium for prescription drug coverage,
known as Part D, should average $24 next year, the same as this year. But
Democrats dispute that estimate, saying they expect the average premium for drug
coverage to rise by about $5 next year.
Analysts said the less wealthy seniors are still getting a break compared to
last year.
"Seniors should be helped by the drop in energy costs, which will make their
heating bills more tolerable, and the lower increase in health premiums," said
David Wyss, chief economist at Standard & Poor's in New York.
Advocates for the elderly said that the cost of living adjustment was a critical
safety net for the nearly one-third of retirees who rely on Social Security for
90 percent or more of their income.
"The COLA is more than helpful. It is crucial," said David Certner, legislative
policy director for AARP, which represents people 50 and older. "Without the
COLA, you would see the purchasing power of retirees cut in half in a 15-year
time period."
President Bush, who pledged to make overhaul of Social Security and Medicare top
priorities in his second term, has seen his plan to partially privatize Social
Security run into stiff opposition in Congress.
He and Treasury Secretary Henry Paulson have pledged to continue searching in
Bush's final two years in office for a solution to the funding problems both
programs face with the looming retirement of 78 million baby boomers.
© 2006 Associated Press.
Editor's Note:
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