Retail sales, home building shows more proof of a moderate economy

With the case for interest rate cuts growing in the last couple of weeks, we looked to Tuesday's retail sales report for June to see if a Springtime slump in consumer spending was continuing as Summer began.

"Today’s retail sales doesn’t suggest that the consumer is falling off a cliff,” Richard Bernstein Advisors' Michael Contopoulos says. “It doesn’t suggest that the modest rise in the unemployment rate is really a huge concern." pic.twitter.com/JxE5joqdU5

— Yahoo Finance (@YahooFinance) July 16, 2024

US June retail sales flat with ex auto and gas +0.8%, both stronger than expected with May revised up
But July NAHB home builder conditions index -1pt to to a softish 42 as high mortgage rates continue to impact
(EvercoreISI and Bloomberg charts) pic.twitter.com/al9XGEJs07

— Shane Oliver (@ShaneOliverAMP) July 16, 2024

Pretty good, all things considered. And the drop in auto sales seems to be related to a wave of cyberattacks that hit car dealers last month, so expect a rebound there once things return to normal.

But those numbers also aren't so strong that it should re-fire inflation. In addition, note that part about home building being "softish". That got reiterated on Wednesday with a report that showed home building was up in June, but still down from the month before.

Building Permits
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,446,000. This is 3.4 percent above the revised May rate of 1,399,000, but is 3.1 percent below the June 2023 rate of 1,493,000. Single-family authorizations in June were at a rate of 934,000; this is 2.3 percent below the revised May figure of 956,000. Authorizations of units in buildings with five units or more were at a rate of 460,000 in June.

Housing Starts
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,353,000. This is 3.0 percent (±10.5 percent)* above the revised May estimate of 1,314,000, but is 4.4 percent (±12.7 percent)* below the June 2023 rate of 1,415,000. Single-family housing starts in June were at a rate of 980,000; this is 2.2 percent (±12.1 percent)* below the revised May figure of 1,002,000. The June rate for units in buildings with five units or more was 360,000.

Housing Completions
Privately-owned housing completions in June were at a seasonally adjusted annual rate of 1,710,000. This is 10.1 percent (±10.6 percent)* above the revised May estimate of 1,553,000 and is 15.5 percent (±12.6 percent) above the June 2023 rate of 1,480,000. Single-family housing completions in June were at a rate of 1,037,000; this is 1.8 percent (±10.3 percent)* above the revised May rate of 1,019,000. The June rate for units in buildings with five units or more was 656,000.

The completions are especially interesting to me, as those numbers have been consistently higher in 2024, which could eventually play a role in reducing the lack of inventory that has caused much of the affordability issues in the housing market.

Conversely, permits are significantly lower than where they were at the start of 2022, and while they rose in June, that came after 3 straight months of declines, and the overall trend is still down.

This is yet another reason that I believe the higher interest rates are holding back the economy. And while I think the Fed wants some of that, I think the plan was for that lack of activity to drop home prices due to a lack of demand. Instead, I'd argue that the higher rates are preventing people from wanting to put homes on the market, and the lower amount of permits in 2023 and 2024 will mean lower inventory in the future, and can keep home prices higher than they should be.

I'd hope the Fed would cut rates when they meet in 2 weeks, to get in line with an economy whose GDP and inflation are both running around 2.5%. But sadly I think we are waiting until September for that, assuming things stay on the same trajectory. I just hope it's not caused unnecessary strain on a consumer that has helped keep the economy moving long past what the "experts" have thought.