A rebound in housing starts and a tamer inflation rate helped push the Dow Jones industrial average briefly above 12,000 Wednesday.
“We seem to be in this Goldilocks economy, not too hot, not too cold,” said Vectra Bank Colorado economist Jeff Thredgold.
In January, Thredgold predicted the Dow would reach 12,000 this year, a forecast he didn’t shy away from even when the index slipped below 10,800 in June and July.
The index of 30 blue-chip companies reached a high of 12,049.51 before pulling back and closing the day at a record 11,992.68.
Investors wouldn’t be driving stock prices higher if they thought the U.S. economy was going into a recession, Thredgold said.
A 7.2 percent drop in energy costs in September, compared with August, drove the Consumer Price Index down 0.5 percent last month, the U.S. Bureau of Labor Statistics reported Wednesday.
With annual inflation running at 2.1 percent, the Federal Reserve board – which meets Tuesday – may be under less pressure to resume interest-rate hikes to slow the economy. In the last two meetings, the Fed has held the federal funds rate at 5.25 percent.
Core inflation, which excludes volatile food and energy prices, rose 0.2 percent in September for an annual pace of 2.9 percent.
A positive report on housing starts from the U.S. Census Bureau also bolstered the market. After falling in six of the previous seven months, housing starts rose to an annual pace of 1.77 million in September, up from an annual pace of 1.67 million in August.
Housing permits, a longer-term measure of strength in the sector, fell to an annual rate of 1.62 million in September, down from 1.73 million in August.
“While housing starts have slowed from the record-setting, and unsustainable, pace of the past, the market remains robust,” said Bob Walters, chief economist for Quicken Loans.
Despite a sharp drop in new- and existing-home sales this year, 2006 is shaping up to be the third- or fourth-best year on record, Thredgold said.
But Bob Bush, an economist with Eric Forecasting Publications LLC in Englewood, took a darker view of the gain in housing starts.
“It means inventories will continue to build, and that is the real negative issue behind housing – too much inventory will just take longer to work off,” he said.
In the Denver metro area, there were 31,450 unsold homes on the market in September, compared with 27,248 in September 2005. Around 7,000 of those home are estimated to be foreclosure properties, according to Larry McGee, managing broker of the Berkshire Group.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
