The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the views of the Georgia Institute of Technology or the Georgia Board of Regents.
These next few weeks are going to be very busy at my house as one son is graduating from Georgia Tech, heading off to Europe for several weeks, and then getting ready to start his career. And yes, he has a great job all lined up and is ready to go! He won’t be moving back in with mom and dad, but to be honest, as he is learning, the housing market he is walking into really stinks!
But before that I have to travel to Alabama for the College Ultimate Frisbee Regional Tournament and host some graduation parties! My other son (also at Georgia Tech) is heading off to Seattle for a summer internship as soon as school is over. Added to that are various weddings; niece and nephew graduations; multiple work-related conferences; and hopefully somewhere in there, a backpacking trip!
And on top of it all, the Middle East seems ready to explode. And, isn’t there something still going on over in Ukraine? Geo-politics MAY have a little impact on our economy over the coming weeks or months.
Amidst all of this, economic data is still being released, and I am going to try to report on it every week. But I apologize in advance if I get it out a little late over the next several weeks.
Retail Sales
Retail sales were up big again in March as the consumer outspent all expectations. “Experts” were expecting sales to jump 0.3% in the month, but they came in more than twice that at 0.7%! Similarly, if you exclude auto sales, the expectation was for an increase of 0.4%, but instead, we got a jump of 1.1%! This is the second month in a row of very positive retail sales. And finally, a measure I haven’t reported on before…”core retail sales.” Core retail sales is spending excluding automobiles, gasoline, building materials, and food services. (In theory, prices for these goods are more volatile and skew the overall number.) That jumped 1.1%…the biggest monthly jump since early 2023.
Before we get too excited about this we need to keep two things in mind. First, Easter was in March. That is a rare situation, and because of it, March will be much higher than usual. In the retail sector, they often combine the results for March and April (affectionally referred to as “Marpril”) to get a clearer picture of the trend. We need to wait and see if April confirms this growth, or falls off.
Second, as I have said many times, these numbers are NOMINAL. In other words, they are NOT adjusted for inflation. Adjusted for inflation, REAL retail sales were up 0.5% year-over-year in March…only the fourth time they have been positive since January 2023. So, in March, we spent a whole lot more, but barely got the same amount of stuff we go last year.
Consumer Sentiment
And consumers know that they aren’t getting the same amount of stuff! Even though nominal retail sales were up, preliminary consumer sentiment for April was down as consumers reported feeling worse about both present conditions and the future. One of the big drivers of that was inflation expectations as consumers are starting to think that maybe inflation isn’t going away as quickly as they hoped. In fact, inflation expectations for both one-year and five-years out both moved up in April. I suspect that sentiment will continue to waffle back and forth for the rest of the year as we wait on the results of the November election and consumers can then digest what the eventual winner means for the U.S. economy going forward.
Home Builder Confidence
Another issue weighing on the mind of consumers are those pesky mortgage rates which are back above 7%….7.3% as of last Friday. That also impacted the confidence of home builders whose confidence was unchanged in March.
The reason that the overall index was unchanged was because home builders did report a slight improvement (1 point each) in both the sales of single-family homes, as well as traffic of prospective buyers. However, their outlook for the next 12 months dropped two points as they expect a dip in sales with mortgage rates back on the rise and no hope of a Fed rate cut in the foreseeable future.
Overall, 22% of builders had to cut prices in April, down from 24% the previous month. The average cut was 6%. In addition, 57% of builders used other sales incentives in April, down slightly from 60% in March. But the good news is that inventory appears to be on the rise! Newly listed homes sales are up 30% from last year, which may bring out a few house hunters this spring.
Housing Starts and Building Permits
While builders’ expressed sentiment may be above 50, their actions don’t reflect that position. Single-family housing starts fell 12.4% in March…their largest monthly decline since April 2021. Multi-family starts also got rocked as new rental units under construction dropped 21.7% in the the month bringing the total number of multi-family starts to their lowest level since the COVID lockdown.
Speaking of the lockdown, these drops (single-family and multi-family) combined to produce the largest monthly decline in total private housing starts since the lockdown.
So, despite what the builders say, they can see the writing on the wall regarding interest rates as well as anyone else who cares to look. With rates not coming down anytime soon, they are slowing down the pace of building. And, if you aren’t going to build, you don’t need to get a permit. Permits also fell off across the board in March. In total, permits were down 4.3%. Single-family permits were down 5.7% and multi-family permits were down slightly at 1.2%, led by permits for dwellings with 2-4 units which fell 10.3% for the month…the biggest decline since September.
Existing Home Sales
The last bit of data released this week on the housing market was existing home sales, and like the other housing data, it was also disappointing. On an annual basis, existing sales dropped to 4.19 million while the median price dropped slightly to $398K on a seasonally adjusted basis. Roughly 29% of the sales went for more than the listing price. On average, the homes were on the market for 33 days.
The decline in sales was expected due to the fact that mortgage rates are back on the rise. Currently, a 7% mortgage rate seems to be a psychological barrier for buyers, and sellers are not willing to put their house on the market and lose their low-rate mortgage. The “golden handcuff” (the distance between current rates and their existing rate) is still more than 300 basis points and rising as rates move above 7%.
Industrial Production
Total industrial production for the U.S. grew 0.4% in March – the same rate that was posted in February after revisions. Manufacturing was up 0.5%, but take out automobiles, and the increase was only 0.3%. However, on a year-over-year basis, industrial production is flat. Manufacturing is up 1% for the year, but ex. autos, manufacturing is up only 0.2% for the year.
You may recall last week I pointed out that the ISM Manufacturing Index finally rose above 50 for the first time in 17 months. Manufacturing has been languishing for a year and a half, but with both the purchasing managers and actual output showing signs of life, perhaps things are looking up. Of course, if manufacturing is on the road to recovery, the case for rate cuts becomes even weaker.
Leading Economic Indicators
Last month, the index of leading economic indicators rose for the first time in two years. However, in March the index fell once again. Again, as I have said in the past, there is almost no reason for me to report this because the index clearly isn’t doing what it is supposed to do…which is predict the direction of the economy. For 23 of the last 24 months, the index has declined. Yet, according to “official” statistics, the economy is expanding at an above average rate and there doesn’t appear to be a recession on the horizon! So what exactly is the index telling us? Absolutely nothing. It’s worthless.
Final Thoughts…
As the readership of this little update grows (242 and counting!) several of you have taken to sending me questions via e-mail or LinkedIn. I try to respond, but often the questions are rather involved, and with all the things on my plate, sometimes I just don’t have time to respond in the manner your question deserves. I apologize in advance if I don’t get back to you.
However, the best way to get your questions answered is to meet with me in person! Toward that end, I like to let you know when and where I will be speaking. My next talk will be at the LaGrange-Troup County Chamber of Commerce Early Bird Breakfast on May 14th. Coffee and networking will begin at 7:00am followed by breakfast and then the program will start about 7:50am when I will speak for about 25-30 minutes on the economy. The meeting will be held at the Del’avant Event Center which is located at 141 Main Street, LaGrange. Hope to see you there!
