Overview
Economic indicators released this week for June generally showed improvement, although in some cases reaching that conclusion requires some analysis beyond the headline figures.
The clearest strength was in industrial production and manufacturing output, each of which were at their strongest seasonally adjusted level in quite some time. Residential construction also saw gains, which were accentuated by upward revisions of prior months’ starts and permits.
Appreciating a flat month for retail sales requires a closer look. Pricing was one factor holding down results. Another was a cyberattack against a software vendor serving auto dealers.
Industrial production and manufacturing
Overall industrial production (IP) in June was at its strongest seasonally adjusted level since December 2018, according to preliminary figures from the Federal Reserve.
Manufacturing output also was strong, reaching its highest level since October 2022. Mining and utilities output also increased in June.
The latest data follows an annual benchmark revision of IP data back to 2019 that was released in late June. The revision resulted in practically no change in overall manufacturing output, but changes were more significant for individual industries.
Manufacturing production rose 0.4% m/m in June following an upwardly revised 1.0% gain in May. Output was up 1.1% y/y, matching the comparisons in January and December 2023.
One big strength for manufacturing in June was motor vehicles and parts production, which rose 1.6% to its second highest level ever, just marginally below seasonally adjusted output in July of last year. In fact, the index levels for the two months are the same when rounded off to tenths of a point. Automotive output was up 4.2% y/y.
Retail sales
On a current-dollar basis, retail and food service sales were flat m/m, seasonally adjusted, in June, but retail trade sales were depressed by a slight decline in commodities prices and by a cyberattack that likely cut into motor vehicle sales that otherwise would have occurred during the month.
Although some analysts highlight retail and food service sales as adjusted by the Consumer Price Index, FTR has chosen to focus on retail trade sales specifically, which exclude food services, and to adjust those sales by the commodities-specific CPI.
As we have discussed frequently, including last week, pricing for services continues to rise while pricing for commodities frequently declines m/m, including in June.
Nominal retail trade sales were even weaker than total retail and food service sales at down 0.1% m/m. However, real retail trade sales were up 0.3% m/m. This result is hardly surprising when you consider that the retail sector experiencing the greatest m/m decrease (3.0%) was gasoline stations – a drop that obviously was linked mostly to falling prices.
Pricing probably was not the only distortion, however. Sales for motor vehicle and parts dealers fell 2.0%. According to media reports, cyberattacks against a major supplier of software to auto dealers crippled thousands of dealer operations from June 19 through the beginning of July. Although it is unclear how much the cyberattacks hurt sales, they presumably had a significant impact.
Aside from gas stations and auto dealers, current-dollar sales were higher m/m in every major retail and food services category except for sporting goods and related stores, which saw a dip in sales of just 0.1%.
On a y/y basis, nonstore retail continues to dominate at up 8.9% in current dollars. Food services and drinking places was the next strongest at up 4.4% y/y. The weakest retail category y/y was furniture and home furnishings stores, which saw June sales that were down 4.0% y/y.
Residential construction
Housing starts still are not much higher than they were in March – the month with the lowest rate of starts since the spring of 2020 – but they did rise 3.0% m/m, seasonally adjusted, in June. Also, the Census Bureau upwardly revised the preliminary May estimate. Starts were down 4.4% y/y and 12% below the pre-pandemic month of February 2020.
The improvement in new construction during June was due to housing units in multi-family dwellings. Multi-family starts jumped 22% while the far larger category of single-family homes declined 2.2%. However, single-family starts were up 5.4% y/y while multi-family starts were down 23.4%.
Permits authorized for future residential construction rose 3.4% for the first m/m increase since February. Permits were down 3.1% y/y. Like the dynamic with starts, multi-family permits rose sharply (19.2%) while single-family permits fell 2.3%.
Single-family permits were down 1.3% y/y for the first negative comparison since May 2023. Multi-family permits were down 6.5% y/y, which is the strongest comparison since February of last year.
Slower starts have meant that the number of housing units under construction is falling. Homes under construction declined 1.5% in June and was down 7.7% y/y.
The number of homes under construction peaked at an all-time high in October 2022 but has fallen 8.7% since then with most of that falloff occurring in 2024. Most of the decrease this year has occurred in multi-family units, although single-family homes under construction have declined for the past three months after stabilizing briefly.
Trucking
As expected, broker-posted spot rates in the Truckstop system decreased during the week ended July 12 (week 28) as the market entered what is typically a soft period for rates following the mid-year peak, especially for van equipment.
Sport rates were still higher y/y for both van equipment types, however, and dry van spot rates recorded their strongest y/y comparison since March 2022. Flatbed rates, which also were down from the prior week, posted their strongest y/y performance in nearly two years.
The total broker-posted rate declined about 3 cents after rising less than 2 cents during the prior week. Total rates were 0.4% above the same 2023 week – the first positive y/y comparison since June 2022 – but 8% below the five-year average for the week.
Spot rates tend to decline between the holiday and at least late July before firming in August and rising somewhat in the run-up to Labor Day
For more on week 28 spot metrics for truck freight, visit https://freight.ftrintel.com/spotmarketinsights.
Rail/Intermodal
Total North American rail traffic was up 3.3% y/y for the week ended July 13, according to the Association of American Railroads (AAR).
Carloads were down 3.8% y/y this week, the second consecutive week of weak carload figures, due to the July 4th holiday and compounded by the effects of Hurricane Beryl. The commodities with the strongest growth this week were grain (19.0%) and petroleum products (8.2%). Those with the greatest declines were motor vehicles (17.6%), coal (12.6%), and nonmetallic minerals (10.2%).
Intermodal had another very strong week, up 10.9% y/y, which is above the four-week average of 9.4%.
The surge in intermodal growth over the past two weeks is largely due to the port shutdowns in British Columbia this time last year, resulting in incredibly weak 2023 figures and a strong 2024 by comparison. Canadian intermodal volume was up 37.7% y/y. As discussed last week, Canadian intermodal traffic during the week ended July 6 was up 71.5% y/y. The port strike was resolved on July 13, 2023, so the intermodal distortion should end in the current week as workers returned.
For the year to date, total rail traffic is up 2.4%, with carloads down 3.4% and intermodal up 8.3%. Of the 10 commodity carload groups reported by AAR, four show positive YTD y/y growth, unchanged from last week. These commodities are petroleum products (8.6%), chemicals (4.5%), grain (2.9%), and motor vehicles & parts (0.9%).
