Consumers spent more at stores in June, but homebuilding sector is in trouble

After a couple of rough months of consumer spending, it looks like retail sales rebounded in June.

Retail sales rose 0.6% in June from the prior month, the Commerce Department said Thursday, rebounding from the steep 0.9% decline in May.

June’s number was much stronger than the 0.2% gain economists projected in a FactSet poll. Spending climbed across categories last month, including at car dealerships, which saw one of the biggest monthly increases. Those sales were up a robust 1.2% in June.

However, the figures aren’t adjusted for inflation, and some goods already began to get more expensive because of tariffs last month. After factoring in June’s 0.3% increase in consumer prices, retail sales were up a more modest 0.3%. Retail sales are adjusted for seasonal swings.

It’s a solid number, and should at least temporarily put off talk of a recession in consumer spending, which seemed possible after the decline in May. But I’ll add that we were still below March's level of spending, and that's before we account for any inflation that's happened over those 3 months.

And as Summer began, Americans did seem willing to still go out and spend, with strong gains in one discretionary area in particular.

…Sales at restaurants and bars — often seen as a barometer of discretionary spending — rose a solid 0.6% in June. Whenever consumers cut back, spending on eating out and alcoholic drinks is usually first on the chopping block.

A measure of retail spending that strips out sales at gas stations, car dealerships and of building materials — known as the “control group,” which provides a clearer picture of spending — was up 0.5% in June, also beating economists’ expectations.

So on the retail side, it seems like the economy resumed solid if not spectacular growth.

But the home construction sector seemed to remain in trouble as the 2nd Quarter of 2025 ended.

Building Permits
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,397,000. This is 0.2 percent above the revised May rate of 1,394,000, but is 4.4 percent below the June 2024 rate of 1,461,000. Single-family authorizations in June were at a rate of 866,000; this is 3.7 percent below the revised May figure of 899,000. Authorizations of units in buildings with five units or more were at a rate of 478,000 in June.

Housing Starts
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,321,000. This is 4.6 percent (±10.6 percent)* above the revised May estimate of 1,263,000, but is 0.5 percent (±9.9 percent)* below the June 2024 rate of 1,327,000. Single-family housing starts in June were at a rate of 883,000; this is 4.6 percent (±11.4 percent)* below the revised May figure of 926,000. The June rate for units in buildings with five units or more was 414,000.

Housing Completions
Privately-owned housing completions in June were at a seasonally adjusted annual rate of 1,314,000. This is 14.7 percent (±12.8 percent) below the revised May estimate of 1,540,000 and is 24.1 percent (±10.9 percent) below the June 2024 rate of 1,731,000. Single-family housing completions in June were at a rate of 908,000; this is 12.5 percent (±11.3 percent) below the revised May rate of 1,038,000. The June rate for units in buildings with five units or more was 383,000.

Even with the slight increase in permits and housing starts from May, the overall trend for 2025 is bad. Permits and starts are at the lowest non-COVID levels since 2019, and the number of houses being worked on and completed is at their lowest levels since 2021-2022.

Put all this together, and I don’t see where additional jobs for homebuilding will be coming from for the rest of 2025. And that’s before we account for higher prices to build homes because of tariffs on Canadian lumber and similar products, and the fact that tariff uncertainty should keep interest rates elevated for at least the next few months.

The retail sales report is another one from June that indicates “OK growth” over “recession”, but home construction continues to be on the decline, which isn’t a good sign for now or the future. It feels like there’s a sputtering momentum with consumer spending that’s still slightly going up vs down, but I keep trying to figure out why it keeps going up, and when things will stall out for good, leading to a more obvious economic downturn.