Wednesday, November 18, 2009

Housing Starts, Real Wages Drops

Two data was published today that confirmed that the U.S. economic recovery is anything but robust.

First, housing starts and to a lesser extent building permits dropped sharply in October, indicating that the big increase in residential construction in the third quarter was only temporary.

Secondly, the seasonally adjusted consumer price index increased more than 0.3% in October. As a result, real wages dropped slightly. Combined with the drop in employment, this means that aggregate real labor income (and therefore probably also the key coincident indicator real disposable income excluding transfer payments) fell in October.

Considering that rents fell slightly again (probably because of the mechanism discussed here), a 0.3% increase in the CPI is incidentally particularly significant and indicates a stagflationary trend.