MarketWatch: Housing, inflation getting worse, data to show

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ECONOMIC PREVIEW
Housing, inflation getting worse, data to show

By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) -- The economy is being squeezed by higher prices on one hand and by a collapsing housing market on the other. Neither problem seems to be getting any better in May, economists said ahead of key economic data in the coming week.

Two government agencies will report on home building and on wholesale prices at the same time Tuesday morning, followed rapidly by a report from the Federal Reserve on industrial output.

The three reports -- coming within 45 minutes -- will be the highlights of an otherwise ho-hum week for economic news.

None of the data are likely to shock markets. No one will be surprised by a further contraction in home building, or by soaring energy prices, especially after the release of the consumer price index on Friday. The market's attention will likely be more focused on the aftermath of the Group of Eight meeting over the weekend, and on earnings reports of major Wall Street firms.

Home building

Builders are desperately trying to reduce the supply of homes on the market, which has been aggravated by the increase in foreclosures. They've reduced the starts of new homes by 55%, but it still hasn't put much of a dent in the number of new homes languishing on the market.

"To reduce inventories, house prices must fall further, and builders must scale back on starting new homes," wrote Global Insight economists Nigel Gault and Brian Bethune. They think starts will fall another 15% to 20%.

Home builders got even more pessimistic about the market last month, with their sentiment index falling to 19 in May, close the record low of 18. At that level, about a fifth of builders think the market is healthy. Economists surveyed by MarketWatch think the June housing market index, which will be released on Monday, will bounce back to 20.

Lehman Bros. economists say bargain hunters are beginning to snoop around developments, which should improve the traffic of potential buyers, if not actual sales. ......(more)

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