Builders grow more worried, study shows

U.S. producer prices fell sharply in August and home builders became more worried about their sales outlook this month, according to data released Tuesday -- a gloomy picture for U.S. growth that the Federal Reserve underlined by slashing interest rates.

The NAHB/Wells Fargo housing market index slipped 2 points to 20 in September, the National Assn. of Home Builders said, matching the record low in January 1991, when the economy was mired in recession.

“Builders are expressing concern that home buyers are getting spooked by the many headlines they are seeing on mortgage market issues,” association President Brian Catalde said.

A reading of the index below 50 means more builders view market conditions as poor rather than favorable.

Analysts said the latest inflation readings would comfort the central bank. Prices facing producers fell a much larger-than-forecast 1.4% in August as energy costs slumped.

It was the largest drop in producer prices since a 1.5% drop in October 2006, and the 6.6% decline in finished energy goods prices last month was the sharpest since an 8% fall in April 2003, the Labor Department said.

Oil prices have since rebounded and U.S. crude oil notched a fresh record Tuesday of $82.16 a barrel, sending a warning that inflation is still at risk from energy prices. But analysts focused on the headline producer price decline.

“The better news inside the data is that pricing in the pipeline eases noticeably,” Joseph Brusuelas, chief economist at IDEAglobal., said in a note to clients.

Economists polled by Reuters had expected producer prices -- a gauge of the prices paid at the farm and factory gate -- to fall 0.2% last month after an unrevised 0.6% gain in July.

The data were released a day ahead of the closely watched consumer inflation report, which analysts polled by Reuters forecast to be unchanged in August after rising 0.1% the previous month.

Stripping out volatile food and energy costs, producer prices rose 0.2% in August after an unrevised 0.1% increase in July. Economists had expected a rise of 0.1% last month.