Overview
Economic indicators for July were mixed this week with welcome results for consumption and inflation but weaker performance for the industrial and housing sectors. However, Hurricane Beryl significantly reduced industrial activity and might have been a factor in residential construction as well.
The automotive industry figured heavily into both the highs and the lows in this week’s data. Vehicle sales were the driving force behind the strongest gain in retail sales in 18 months, but a sharp drop in motor vehicles and parts production turned a positive month for manufacturing into a negative one.
Industrial production and manufacturing
Industrial production (IP) in July fell by the most since January on a seasonally adjusted basis, but weather was a factor as it had been in January.
IP declined 0.6% m/m, and the Federal Reserve said that early July shutdowns concentrated in the petrochemical and related industries due to Hurricane Beryl accounted for about half of the decrease. In January, extreme winter weather was the culprit in a 1.1% drop in IP.
A bigger hit to the industrial sector in July came from a 7.8% drop in motor vehicles and parts production, which the Federal Reserve characterized as being separate from Hurricane Beryl.
The only larger decrease in automotive output since February 2021 – a month severely impacted by extreme winter weather – was the 8.0% drop last October due to labor strikes. Production was down 9.4% y/y for the weakest prior-year comparison since September 2021.
Manufacturing production declined 0.3% in July, but output excluding motor vehicles and parts was up 0.3%. The combined impact on manufacturing output of Beryl and the drop in auto output was just under a percentage point, the Federal Reserve said.
Like petrochemicals, automotive might have been affected by Beryl, at least indirectly. In any event, automotive output apparently has recovered significantly. North American rail carloadings of motor vehicles and equipment were down about 20% y/y for a couple of weeks in early July, but by the week ended August 10, that deficit had shrunk to 1.4%.
While automotive struggled in July, several other key durable goods industries saw solid gains, including computer and electronic products (1.5%), machinery (1.4%), and primary metals (1.3%).
Mining output was flat m/m as facility closures due to Beryl reduced natural gas liquid extraction while crude oil extraction rose. Utilities output fell 3.7%.
Residential construction
Key indicators of residential construction in July sank to their lowest seasonally adjusted levels since the early months of the pandemic in 2020, although Hurricane Beryl might have been a minor factor.
Housing starts fell 6.8% m/m to an annualized rate of 1.24 million, which is the lowest since level of new construction since May 2020. Starts were down 16% y/y. Permits authorized for future construction declined 4% to just under 1.4 million annualized – the lowest since June 2020. Permits were down 7% y/y.
Starts for single-family homes fell 14.1% m/m and were significantly negative (14.8%) y/y for the first time since June 2023. Permits for single-family home construction were basically flat m/m but were down 1.6% y/y.
Multi-family starts – those for units in dwellings of five or more units – increased 11.7% m/m but were still down 21.8% y/y. Permits authorized for multi-family construction fell 12.4% m/m and were down 18.2% y/y.
As starts have faded, so has the number of housing units still under construction. The number of units under construction were basically at a historically high level from mid-2022 through late 2023 but have been falling steadily all year. Even so, the number of homes under construction in July was still higher than at any point between late 1973 and the beginning of 2022.
Trucking
Total broker-posted spot rates in the Truckstop system declined in line with seasonal expectations during the week ended August 9 (week 32), although refrigerated rates eked out a tiny gain.
Spot rates for both dry van and flatbed equipment declined week over week as they almost always do during week 32. Refrigerated spot rates are less consistent during that week of the year, especially in recent years. Flatbed spot rates were down for an eighth straight week for the first time since 2019.
For more on week 32 spot metrics for truck freight, visit https://freight.ftrintel.com/spotmarketinsights.
Canadian rail labor situation
There have been several developments regarding the potential Canadian rail strike. For starters, both Canadian Class Is stated that they would institute an employee lockout on August 22, which is the earliest date a work stoppage can legally begin if an agreement between them and the Teamsters union is not reached by then.
Also, Canada’s federal government denied CN’s request for intervention. The Labour Minister stated that the railroads and union have a “shared responsibility” to come to an agreement on their own. As a result of the growing uncertainty, both the Canadian and connecting U.S. railroads have begun to issue embargos on rail traffic with hazmat shipments being the highest priority.
