Automotive output falls but remains very strong historically.
Data released this week generally showed the economy in June as stable to slightly weaker. Industrial production and manufacturing output declined modestly. Retail sales were marginally higher overall but flat when adjusted for inflation. Inventories were little changed in relation to sales. After surprising strength in the initial May data, housing starts in June declined.
Industrial production and manufacturing
Industrial production fell 0.5%, seasonally adjusted, in June for the second straight month as the three components – manufacturing, mining, and utilities – all declined m/m. IP was down 0.4% from June 2022, which is the first negative y/y comparison since February 2021. Production is still higher than the pre-pandemic month of February 2020 but only by 0.6%.
Manufacturing output was down 0.3% both m/m and y/y but 0.7% higher than February 2020. Non-durable goods manufacturing declined 0.6% in June while durable goods manufacturing eased 0.1%. Durable goods output was broadly stronger but gains elsewhere were offset by a 3% drop in motor vehicle and parts production and a 1.2% decrease in nonmetallic mineral products. While automotive output was down significantly, June was still the third strongest month on record for seasonally adjusted production. The top two months ever were May and April, which were even stronger than previously thought as the Federal Reserve revised preliminary figures for those months higher.
Retail and food service sales
In current dollars, retail and food services sales ticked up 0.2%, seasonally adjusted, in June, but sales adjusted for inflation were flat m/m, according to data from the St. Louis Federal Reserve. Nominal sales were up 1.5% y/y and 31.2% higher than in February 2020. Real sales, however, were down 1.6% y/y and up 12% from the pre-pandemic level.
Retail sectors seeing gains of more than 1% were miscellaneous store retailers (2.0%), nonstore retailers (1.9%), furniture and home furnishings stores (1.4%) and electronics and appliance stores (1.1%). Sectors with declines of 1% or more were department stores (2.4%), gasoline stations (1.4%) building material and garden equipment/supplies dealers (1.2%), and sporting goods and related stores (1.0%). The decrease in gas station sales was driven principally by lower prices.
The 0.7% decline in food and beverage store sales was also notable as it was the largest decrease for a month since October 2020.
Inventories
Data on inventories in May showed little change relative to sales. The retail inventories-to-sales ratio ticked up to 1.30, seasonally adjusted, from 1.29 in April due to motor vehicles and parts, which increased to 1.64 from 1.62. Excluding automotive, the retail inventories-to-sales ratio was unchanged at 1.20, which is roughly in line with the pre-pandemic level.
Wholesale inventories were slightly less lean at a ratio of 1.41, which matches March as the highest since January 2009. The manufacturing inventories-to-sales ratio dipped to 1.49 from 1.50 in April.
Residential construction
June data and revisions to preliminary May figures show a residential construction market that is not as robust as it had looked a month ago. Seasonally adjusted housing starts fell 8% m/m – the largest m/m decline since July of last year – following a downward revision of May’s increase to 15.7% from 21.7% previously. Housing starts were down 8.1% y/y and 8.4% compared to February 2020.
Starts fell for both single-family homes and units in multi-family dwellings of five or more units. Single-family starts declined 7% while multi-family starts fell 11.6%. Single-family starts were 10% below February 2020; multi-family starts were 4.9% below the pre-pandemic level.
Permits authorized for future housing construction decreased 3.7% m/m following a slightly upwardly revised 5.6% increase in May. Permits were down 15.3% y/y and flat versus February 2020. Single-family permits increased 2.2% m/m; multi-family permits fell 13.5%. However, permits are still much stronger for multi-family units compared to the pre-pandemic level. Single-family permits in June were 6.5% below February 2020 while multi-family permits were 15% higher.
The number of homes under construction essentially held steady for the third straight month with an increase of 0.1% m/m after no change in April or May. However, the number of single-family homes under construction fell for the 13th straight month while the number of multi-family units under construction continued to rise as it has consistently since March 2021.
Sales of existing homes
Sales of existing single-family homes fell 3.4%, seasonally adjusted, in June. The decrease narrowly exceeded the decline in April for the largest since November. Sales were down 18.8% y/y and 27.2% below February 2020.
The National Association of Realtors, which tracks sales of existing homes, said that lack of inventory continues to be the principal issue in weak sales. The market could easily absorb a doubling of inventory, it said. Despite the low sales rate, the inventory of homes on the market relative to sales was still a low 3.1 months.
Affordability also remains an issue due to the combination of high prices and high mortgage rates. The median price of an existing single-family home sold in June rose 3.6% to $416,000, which is the highest since the record high of $420,900 in June of last year. The June median sales price was nearly 53% higher than the median in February 2020. Higher prices recently are likely a function both of tight inventories and a skewing of sales toward more expensive homes, which are purchased by buyers who are less likely to be deterred by affordability issues.
Mortgage rates
Mortgage rates fell nearly two-tenths of a point in the latest week after three straight weeks of gains. The rate on a 30-year fixed-rate mortgage in the latest week was 6.78%, according to Freddie Mac.
Diesel prices
The national average price of diesel was unchanged in the latest week. Prices were higher in more regions than they were lower, but the key moves were a 2.5-cent increase in the Lower Atlantic and a 1.6-cent decrease in the Midwest. Those are two of the largest regions in terms of diesel sales volume. Another large sales region is the Gulf Coast where prices ticked up a tenth of a cent.
Meanwhile, crude prices have moved a bit higher recently. After closing at its highest price since April on June 13, West Texas Intermediate has closed between $74 and $76 a barrel over the past week.
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