Hot Housing, Cool Retail Sales and Manufacturing: What We Learned During the Week of July 13-17

Housing’s heating up while retail sales and manufacturing both remain cool.  Here’s the U.S. economic data you missed during the week ending July 17.071915

1. Housing construction remained strong this spring—at least by post-recession standards. The Census Bureau puts housing starts during June at a seasonally adjusted annualized rate (SAAR) of 1.174 million units, up 9.8% from May and 26.6% from a year earlier. The month-to-month change came from the 29.4% bump in starts for multi-family units (note this data series tends to be quite volatile month-to-month). Starts of single-family homes slipped 0.9% for the month but remained 14.7% above the June 2014 pace. Starts were well above year ago levels in 3 of 4 Census regions, with only the Midwest suffering a decline in starts from their June 2014 pace. Looking forward, the SAAR of issued housing construction permits grew 7.4% for the month to 1.343 million permits, with much of the gain seen for permits to construction of multi-family units. There were 30.0% more issued construction permits in June than there were a year earlier.

Consistent with the more robust housing sector activity, homebuilders are the most confident they have been in nearly ten years. The National Association of Home Builders’Housing Market Index came in at a seasonally adjusted 60. While this matched June’s reading, the NAHB upwardly revised last month’s reading by a point to its highest reading since November 2005. Further, the index has been above a reading of 50 for 13 straight months (and for the 21sttime over the past 26 months), which indicates a greater percentage of builders see the housing market as “good” than see it as “poor.” Also improving during July were measures for current (up a point to 66) and expected (up 2 points to 71) sales of single-family homes, while the index for traffic of potential buyers slipped a point to 43. In response to the survey results, the NAHB said “we should expect a continued recovery of the housing market” during the second half of 2015.

2. Retail sales wilted in the summer heat during June. The Census Bureau estimates retail sales fell 0.3% during the month to a seasonally adjusted $442.0 billion, up a tepid 1.4% from a year earlier. After removing the 1.1% drop in sales at auto dealers/parts stores and the 0.8% gain in sales at gas stations (resulting from higher gasoline prices), core retail sales slipped 0.2% for the month and were up a modest 2.7% from June 2014 levels. Sales fell at stores focused on apparel and building materials, along with non-store retailers and restaurants/bars. Sales improved during the month at electronics/appliance stores and general merchandisers.071915

3. Manufacturing output stagnated for a 2nd consecutive month in June. The Federal Reserve estimates manufacturing production was unchanged for the month and was up only 1.8% from a year earlier (its worst 12-month comparable in 1.5 years). Production of durable goods slipped 0.1% for the month, hurt by a 3.7% drop in motor vehicle production (its 1st decline since February) and slower production of wood products. On the positive side, computer/electronics and furniture production gained during the month. Output of nondurables gained 0.2%, boosted by higher production of chemical products. Overall industrial production grew 0.3% during June, as output in both the mining sector (+1.0%) and at utilities (+1.5%) improved from their May marks.

4. Consumer and producer prices grew again in June, with gasoline not the only culprit. The Bureau of Labor Statistics estimates the Consumer Price Index (CPI) increased 0.3% during June, the 5th consecutive monthly increase albeit slightly smaller than May’s 0.4% rise. Energy CPI grew 1.7% during June, propped up by a 3.4% hike in gasoline CPI and smaller gains in prices for utility delivered natural gas (+0.3%) and electricity (+0.2%). Food prices grew 0.3%, its largest single-month gain of the year with eggs responsible for 3/4ths of the gain. Net of energy and food, core CPI grew 0.2% during the month, with prices of core services up 0.3% and those of core goods off 0.1%. Even with June’s gain, consumer prices were only 0.2% above year ago levels (as gasoline prices remain well below year ago levels). The core measure has grown 1.8% over the past year, just below the Federal Reserve’s 2% inflation target.

Meanwhile, wholesale prices gained for a 2nd straight month. Final demand Producer Price Index (PPI) grew 0.4% during June following a 0.5% gain during May. PPI for final demand goods jumped 0.7%, with 30% of the increase attributed to a 4.3% increase in gasoline prices. PPI for final demand energy was up 2.4% for the month and that for final demand food grew 0.6% (which included the impact of a 69.6% surge in egg prices). Net of energy and food, the PPI for final demand core goods grew 0.4% (its largest single-month percentage gain since January 2014), featuring substantial gains in prices for pharmaceutical preparations, industrial chemicals and cigarettes. Even the PPI measure for services saw its largest gain of the year with a 0.3% increase.

5. Regional Federal Reserve Banks report improving business conditions during the latter half of the spring. The opening paragraph of the Beige Book, a compendium of comments and anecdotal information on economic conditions collected by each of the 12 regional Federal Reserve Banks, noted that “economic activity expanded from Mid-May through June.” Gains in consumer spending were “varied,” with some areas seeing greater spending because of lower energy costs while spending was hurt elsewhere by the strong dollar. Nonfinancial services enjoyed “moderate growth” while transportation was “mixed across the country.” Home sales grew in most regions while residential construction “varied across most of the country.” While employment levels were “increased or…steady” in most industries, most regions reported only “modest wage pressures.”

Other reports released over the past week that you might find of interest:
Jobless Claims (week ending July 11):  281,000 (-15,000). 4-week moving average 282,250 (+3,000).
Business Inventories May 2015:  +0.4% vs. April 2015, -2.2% vs. May 2014.
University of Michigan Consumer Sentiment preliminary July 2015: 93.3 (-2.8 points vs. June 2015).

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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