Housing Starts: The Bad News You're Missing

S&P futures rallied several points before the open Tuesday to a fresh 4-month high, as August housing starts and building permits both came in well above expectations.

That's the good news.

The bad news is that July starts and permits were both revised down slightly, and the August gains were mostly multifamily, not single family. In fact, the gains in permits were entirely due to multifamily; single family permits dropped to 16-month lows.

Will the Fed acknowledge the summer slowdown in its FOMC statement today?

Most traders think there is no way the Fed will announce a new round of quantitative easing today (perhaps November), but there should be more pessimistic language on growth, and some statement, similar to what Bernanke made at Jackson Hole, that the Fed is willing to take unconventional action should the economy slip further. This may satisfy market bulls, who think that QE will help continue the rally. (More: Crescenzi's Fed Preview—3 Focal Points)

The argument of those who are pro-QE: with growth prospects in the two percent range, the Fed doesn't really need to see further deterioration; it just needs to see things not getting better.

Still, the case for a more pessimistic language is not as strong as it was a month ago: just look at the Housing Starts data today.


1) European stocks jump following yesterday's rally in U.S. stocks. While the Dow, S&P and Nasdaq all closed at 4-month highs, many major global markets are at sitting at or near new multi-month highs: U.K., France & Mexico at 4.5-month highs, Hong Kong at a 5-month high, Germany less than 1% below a 2-year high, South Korea & Singapore at 2-year highs.

2) ConAgra falls 8 percent after missing Q1 estimates. Earnings fell short of expectations ($0.34 vs. $0.39 consensus) as sales declined more than expected. Another problem - margins were squeezed amid heavy promotional activity and "inflation that outpaced cost savings."

The food maker's earnings growth forecast for the full-year was cut to 5 percent-7 percent, down from 8 percent-10 percent.

3) AutoZone had an outstanding quarter ($5.66 vs. 5.44 consensus, a 27 percent increase from the same period last year, the 16th consecutive quarter of double-digit EPS increases) amid a solid 6.7 percent rise in same-store sales. It has been a good year for the auto parts retailer…shares are up nearly 40 percent YTD, hovering right at historic high levels.

It's not just the DIY (do it yourself) crowd that's helping: they are seeing rising commercial sales.

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