Overview
Despite this week being the busiest of the month for economic indicators, the most discussed development was the Federal Reserve’s drop in interest rates, which was larger than many expected.
Otherwise, indicators for August mostly were neutral to positive as the industrial sector rebounded and housing starts rose sharply while retail sales were basically flat. However, sales of existing homes fell to just above their lowest level since 2010. Meanwhile, diesel prices fell to their lowest level in nearly three years.
Industrial production and manufacturing
Industrial production (IP) in August recovered most of its July downturn, rising 0.8% m/m, seasonally adjusted, after falling 0.9% in July due to Hurricane Beryl and other factors. Manufacturing and mining saw strong m/m gains in line with that of total IP while utilities output was flat.
The healthy increases in IP and manufacturing followed downward revisions in prior months’ estimates. The overall IP revision was modest because mining saw a small upward revision.
The revisions in manufacturing were more substantial. Manufacturing output rose 0.9% m/m, but due to prior-month revisions, it was only 0.15% higher than the initial estimate for July.
A big driver of both the August rebound and the downward revisions in manufacturing output was motor vehicle and parts production. Automotive output jumped 9.8% in August. However, that gain followed substantial downward revisions in previous estimates back to April. The revised July estimate of automotive output was nearly 3% below the Federal Reserve’s initial estimate.
Excluding motor vehicles and parts, manufacturing production ticked up 0.3% following a downwardly revised 0.1% dip in July. The initial estimate for July had been a 0.3% increase.
Other durable goods seeing more than 1% gains in output during August were primary metals (up 3.2%); electrical equipment, appliances, and components (up 2.0%), and aerospace and miscellaneous transportation equipment (up 1.2%).
Nondurable manufacturing, however, declined 0.2% with the biggest hit coming from petroleum and coal products output, which was down 2.3%.
Residential construction
Housing starts jumped 9.6% m/m, seasonally adjusted, in August for the largest gain since February. Starts were up 3.9% y/y, which also is the strongest level since February.
Single-family homes drove August’s strength in starts with a 15.8% increase. Starts of housing units in multi-family dwellings of five or more units fell 6.7%. Single-family starts were up 5.2% y/y while multi-family starts were down 6.2%.
Permits authorized for future construction increased 4.9% but were down 6.5% y/y. Single-family permits increased 2.8% m/m but eased 0.5% y/y. Multi-family permits rose 8.4% m/m but were down 16.8% y/y.
Housing units under construction declined for the ninth straight month, falling 1.9% m/m. Homes under construction are down 11.1% y/y. Single-family homes under construction eased only 0.3% m/m and were down 5.2% y/y.
With starts over the past year being substantially lower than they were in 2022 and early 2023, multi-family homes under construction fell sharply, plunging 3.2% m/m – the largest single-month drop since November 2010.
Sales of existing homes
Although August was strong for residential construction, home sales – at least sales of existing homes – resumed their downward trend.
After rising 1.7% in July, sales of existing single-family homes decreased 2.8% m/m, seasonally adjusted, in August. Sales were down 3.3% y/y. The annualized rate of 3.48 million homes sold is the lowest since October 2010 except for October of last year when the sales rate was only marginally lower.
Despite August’s weakness, several factors suggest that a recovery is likely soon. An increase in absolute inventory coupled with the lower sales recently means that inventories of existing homes on the market at current sales rates have risen to 4.1 months, which is the highest since May 2020. Tight inventories of homes on the market have been a challenge for the housing market as they have simultaneously curtailed options and increased prices.
Another factor that should bolster sales is lower mortgage rates in response to the Fed’s lowering of interest rates. Not only have high mortgage rates reduced home affordability for buyers, but they also have discouraged sellers who would then have to buy another home at rates higher than those on existing mortgages.
Trucking
Broker-posted spot rates in the Truckstop system for the principal equipment types fell during the week ended September 13 (week 37) as they generally do during that week of the year.
Dry van spot rates have decreased week over week during every comparable week since at least 2008. Refrigerated spot rates have declined during week 37 in 12 of the past 13 years, and flatbed spot rates have increased during week 37 only three times since 2008.
The total broker-posted rate decreased about 2 cents to a level that is marginally lower than the rate three weeks earlier and, therefore, the lowest rate since July 2020. The total market rate was about 3% below the same below the same 2023 week and nearly 10% below the five-year average.
The current week (week 38) historically has seen falling rates week over week for dry van and refrigerated equipment but mostly higher rates for flatbed, especially in recent years.
For more on week 37 spot metrics for truck freight, visit https://freight.ftrintel.com/spotmarketinsights.
East/Gulf Coast port situation
Neither side has provided many updates regarding the situation with a potential strike at U.S. East and Gulf Coast port strikes, but negotiations appear to remain stalled. Unfortunately, this is probably a case of “no news is bad news,” as the looming October 1 deadline is now less than two weeks away.
One update this week certainly is not encouraging as the International Longshoremen’s Association union reiterated its intent to strike as soon as the master contract expires on October 1 if it does not receive what it considers to be a fair contract.
This week, a coalition of 177 trade associations called on President Biden “to immediately work with both parties to resume contract negotiations and ensure there is no disruption in to port operations and cargo fluidity.”
Media reports have cited unnamed Biden administration sources as stating that they have no plans to intervene. Of course, that was basically the Canadian government’s stance as well before it ordered binding arbitration recently.
