Manufacturers’ Orders & Shipments Appear to Stabilize

American manufacturers shipped $500 billion worth of products in October, virtually the same as the previous month. This is an improvement over the previous three months, when shipments had declined each month, as can be seen in the chart below. At the same time, new manufacturing orders rose by 0.3% in the month, to reach $497 billion in October.

 

Shipments, for all practical purposes, have been declining most of this year, as have orders. However, the news that the Trump administration has reached a trade agreement with China may reverse this trend, although it will take a few months for businesses to react and for the data to reflect any improvement.

As is often the case, shipments on some categories increased for the month, while others declined. Shipments of Computers & Electronic Equipment showed the largest gain, jumping 1.2% in October, to just under $28 billion, although they account for less than 6% of total manufacturing shipments.

Food Products and Light Trucks & Utility Vehicles increased by 1% each. Food Products are the second-largest manufacturing category, accounting for 13.6% of all shipments and amounting to slightly under $68 billion in October. But Light Trucks & Utility Vehicles represent less than 5% of total shipments, generating $20.6 billion in October.

Shipments of Construction Materials & Supplies, an important category to our membership, remained virtually unchanged in October, up just 0.2%, to $52.3 billion. They are the fourth most important category in volume, accounting for over one in 10 dollars shipped by manufacturers.

Generally, shipments of Construction Materials have increased each month over the last decade  or so, except for some short periods when they have stalled.

Retail Sales Grow Only Slightly in November

Contrary to expectations, retail sales in November came in at a disappointing 0.2% above the previous month. Weak sales growth in November is attributed partly to the fact that Thanksgiving Day came in very late in the month; in fact, there were only two shopping days in the month after Thanksgiving this year, while in 2018, there were nine post-Thanksgiving shopping days in. November. Also, the now-famous Cyber Monday fell in December this year.

Further, that short period is raising concerns about sales for the month of December — there are fewer shopping days between Thanksgiving and Christmas than in previous years. There is usually a late surge in holiday sales, but it should not be surprising if there is a smaller-than-normal fourth-quarter sales boost.

Compared to last year, total retail sales are 3.3% higher, which is the average annual growth maintained during the previous 12 months. But year-to-date sales growth through November is 3.4% — lower than growth in the previous two years. In 2017, sales through November rose 4.6% above the corresponding period in 2016. Similarly, year-to-date growth in 2018 was 5.1% higher than in 2017.

Looking at individual product lines, the fastest growth in November was in Internet and Mail Order sales, which jumped nearly 1% in November (+0.8%), followed by sales at Gas Stations and Electronics & Appliances, each with 0.7% increase in November. These three product categories represent 23% of total retail sales.

But sales at Building Materials & Supplies stores were flat for the month. They represent only 6% of total retail sales. Moreover, sales in November are only 0.4% higher than they were a year ago. Year-to-date, a total of $349 billion worth of these products were sold, just under 1% more than last year.

Mortgage Rates Edge Up

Despite the Fed’s current policy of no changes in interest rates, since the last time they were cut — by 0.25% at the end of October — the mortgage rate has moved up by five basis points to 3.73%.

Of course, the mortgage rate is not only determined by the Fed’s actions, but reflects demand and supply for mortgages in the “mortgage loans” market. It’s difficult to determine which of the two factors is influencing rising rates, but typically it’s a combination of the two.

The different pressures of the demand and supply of funds to the mortgage market can be appreciated in the chart below, which displays the three most common loan terms in the mortgage market: 30-year and 15-year fixed loans, and the five-year and one-year adjustable rate mortgages. In the latest week, the rate for both types of fixed mortgage loans rose, while the adjustable rate mortgage loans fell.

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 $500,000 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.

We hope you find this dashboard useful as a general guide to the state of our industry. Please contact us at Feedback@nkba.org if you would like to see further detail.