Monday, April 22, 2019

Strong retail sales kept economy from stalling out in March

I had mentioned earlier in the month that the Retail sales report for March would be a key one for seeing if the economy was nearing a downturn. This was particularly true as seasonally-adjusted retail sales had a notable decline in December and had also declined in February, leaving that figure 1.1% below where we were in October 2018.

But those consumer recession concerns were put to rest for the time being with a strong recovery for retail in March, and one that was felt across most all parts of the sector.
U.S. retail sales surged in March at the fastest pace since late 2017, as spending on autos, gasoline, furniture, and clothing jumped.

The Commerce Department said that sales increased a seasonally adjusted 1.6% from February, the strongest increase since September 2017….
Sales at gas stations climbed 3.5% in March, while spending at auto dealers jumped 3.1%. Clothiers reported a 2% gain and furniture stores enjoyed a 1.7% bump.

Excluding autos and gas, retail sales increased by a still solid 0.9%.
That last part is the most impressive part of the retail sales report, because it takes out the rise of gas prices in March, and an intriguing end-of-quarter bump in autos. Even general merchandise stores and electronics/appliance stores showed rises, which was a change from the last years.

This led a certain Wisconsin Congressman to keep trying to sell us that the US economy was still in a boom.



Easy there, dude from The Real World. While the retail sales report is nice, and certainly indicates the economy was still growing at the end of Q1, a lot of other areas of the economy aren’t so great.

For example, wholesale and manufacturing inventories were outpacing moderate increases in sales in February, new manufacturing orders have dropped 4 of the last 5 months, and last week we got news that the Federal Reserve’s outlook for manufacturing on the East Coast was at multi-year lows.

The strength in retail didn't translate over into the housing market in March. New housing permits and housing starts both dropped in March 2019, and over the last year it’s striking - permits down 7.8% and starts down 14.2%. Housing completions were also down in March, which makes you wonder where future growth might come from. In addition, The National Association of Realtors reported on Monday that current homes weren’t moving either.
Existing-home sales ran at a seasonally adjusted annual 5.21 million rate in March, the National Association of Realtors said Monday. That was 4.9% lower than February’s pace and missed the Econoday consensus of a 5.3 million rate.

What happened: Sales of previously-owned homes fell more sharply than expected in March as the usual housing headwinds stalked the market. The surge in February was the strongest in nearly four years, and the Realtor lobby group is attributing the March decline to a return to normalcy after that spike. Still, sales were 5.4% lower than a year ago.
Wisconsin had a similar decline in home sales last month, although with price increases and affordability crunches that were more severe than what is being seen in the nation as a whole.
— Existing home sales fell sharply in March, and declining inventories put more pressure on home prices, according to the most recent examination of the state housing market by the Wisconsin REALTORS® Association (WRA). Home sales fell 14.1 percent in March 2019 compared to that same month last year, and median prices were up 6.3 percent to $185,000 over that same period. The first quarter picture was similar but a bit brighter, with first quarter home sales down 7.4 percent, relative the first quarter of 2018, and the quarterly median price up 5.5 percent to $179,300 over the past year.
Even the Realtors admitted in their report that this 6.3% rise in prices was outpacing income growth, but they’re trying to play off the situation as a seasonal blip due to a bad winter with a still-growing Wisconsin economy. I’m not sure it’s that great, and what’s more concerning is that the larger price growth is in previously cheaper regions of the state which have been largely stagnant for population, jobs and wages.

Year-over-year increase in home prices, March 2019, Wisconsin
Central $150,000 (+13.0%)
North $150,000 (+13.0%)
Northeast $154,750 (+7.1%)
West $183,900 (+3.9%)
Southeast $197,950 (+7.0%)
South Central $229,900 (+4.5%)

And if you dig deeper, you'll see most of those increased values tend to be in more sparsely-populated areas. Watch what happens up North when those guys see their property tax bill reflect those Bubbly home values this winter.

UW’s Menzie Chinn has also noted that many economic indicators have been flattening out, retail excluded. And that doesn’t portend well for the future.



And I would agree. I need more than 1 surprising jump in retail sales to make me believe that the danger has passed. With oil jumping by nearly 50% since it bottomed 4 months ago, it means the rising prices at the pump are going to stay well through the Summer, and will consumers keep spending at all sources like they did in March? Especially as the labor market also seems to be at its peak with little upside?

Not seeing it. And I will bet that the Sean Duffys and other GOP hacks will sound more ridiculous in 6 months as they try to convince people the economy is going great today.
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