Investors have become completely convinced that we need to see the housing canary buckle under a little bit. If the housing market softens, then investors will view that as the canary in the cave that indicates that central bankers will not have to be as aggressive.

The outsized gain in housing starts was influenced by the same variable dominating most of the other headline stats like the retail sales and industrial production, namely weather. Everyone knows that housing starts is a volatile number that generally reports wide swings.

This is a sign that the housing market is not exempt from the laws of gravity,

What investors should realize is that the hostesses have been recruited to start removing the punch bowls from all Fed reception rooms and will soon be out full in force and ready to continue raising short-term rates well into 2003.

The report illustrates the fact that housing is not defying gravity and is not likely to do so this year. We're going to see chipping away of housing.

With a fall in the yearly rise in average hourly earnings, both investors and policy-makers can avoid pushing the panic button for a little while longer. In other words, while a (May interest rate hike) remains all but assured, this report did little to nail further tightening beyond this stage.