Retail Sales Stay Strong
Total retail sales increased half a percent (0.5%) in June, to reach $507 billion. Sales were 6.6% higher than a year ago and, further, June sales growth is a shade higher than the prior month’s increase, as can be seen in the chart below.
In fact, the last two months’ growth pace is the fastest in more than a decade. The strength reflects, perhaps, extra spending money that consumers have as a result of the tax changes enacted late last year. Tax reform is thus bearing fruit for some consumers, although since the government did not reduce spending to compensate for the tax revenue loss, we have seen the Federal government deficit increase by nearly $1 trillion.
For the first half of this year, retail sales have hit $2.92 trillion, a robust 5.5% above last year when sales were $2.77 trillion. But a portion of the growth is attributable to a nearly 14% spike in sales at gasoline stations; the average price of gas nationally is up more than 20% since June 2017. Thus, excluding gas stations, sales growth is 4.7% — still a respectable figure.
Areas with fastest growth are “Furniture & Home Furnishing” stores, which hit $56 billion in sales for the firsts six months — up 5.3%.
Sales at “Clothing & Clothing Accessories” stores have reached slightly over $124 billion, up 5.1% over last year.
Building Materials Sales Jump
Monthly sales of building materials continue to rise above their corresponding levels of a year ago. In fact, except for sales in March and April of this year, when they were 3.3% and 2.0% higher than a year ago, respectively, sales every month have been at least 4% higher than the prior year. Furthermore, for several months, they have reached near double-digits.
June sales of building materials reached another record as they hit $32.9 billion, which is 6.2% higher than last year.
New Housing Remains Weak
Last month’s new housing activity came in at its lowest rate so far this year, with June’s annualized single family starts of 858,000 units. Single-family housing permits also were at their second-lowest level in 2018.
Moreover, as can be seen in the chart below, the pace of single-family construction shows a mild negative trend. Were it not for the surprising annualized rate of 944,000 units scored in May, the single-family sector would be much worse.
The evidence from single-family permits, shown by the red line in the chart, shows more clearly a declining trend since the beginning of the year.
Despite this, housing starts for the first half of 2018 are running 8% higher than the same period last year. Through June, home builders have started construction on 452,700 single-family homes, which is 34,000 more homes than the same period last year.
Mortgage Rates Remain Virtually Unchanged
Despite the monetary tightening move taken by the Fed’s Open Market Committee last month, when the committee increased the target rate to the 1.75%-2% range, mortgage rates have remained relatively unchanged over the last four weeks. The latest data, for the week ending on July 19, revealed that the average fixed mortgage rate moved down by a negligible one basis point (0.01%) to 4.52%, contradicting the general trend in overall interest rates.
The lack of response of mortgage rates to the tighter monetary policy reflects the weak demand for mortgage loans; that is, the weak demand for housing that we mentioned above.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single-Family Starts. This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing-Home Sales. These data are issued monthly by the National Association of Realtors and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $750,000 and higher. The data are released quarterly by the U.S. Department of Commerce and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance-Store Sales.This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers, for instance.
We hope you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
