Industrial and consumer indicators were quite weak in December.
Economic indicators released this week suggest far more weakness in the consumer and industrial sectors than had appeared to be the case previously. Not only were December indicators broadly weaker, but preliminary November figures were re-vised downward in several cases.
Industrial production and manufacturing
Despite a sizeable jump in utilities output due to cold weather, industrial production (IP) declined 0.7%, seasonally adjusted, in December. Manufacturing output fell 1.3% – the steepest decline since February 2021 when extreme winter conditions slammed the industrial and construction sectors. Downward revisions in prior-month estimates com-pounded the weakness for both manufacturing and the broader IP sector. The revised decrease for IP for November was 0.6%, down from 0.2% previously. The revised manufacturing decrease was 1.1%, down from 0.6%.
Manufacturing output was weaker in December in almost all sectors as durables were down 1.1% and non-durables fell 1.5%. IP and manufacturing output are still above levels during the pre-pandemic month of February 2020 but just barely so. IP in December was 1.7% higher; manufacturing was just 0.8% higher.
Retail and food service sales
Retail and food sales in December suffered their largest seasonally adjusted drop in a year. Sales fell 1.1% following a downwardly revised 1.0% decrease in November. On a not-seasonally adjusted basis, sales rose in December as they always do owing to holiday shopping and entertaining. However, the 7.8% unadjusted gain was the smallest for a December since 2018. Sales were broadly weaker with only a couple of major retail sectors posting any seasonally adjusted increase at all. Due to falling gasoline prices, gas station sales led the weakness at a 4.6% drop, but even excluding gas stations, sales were down 0.8%.
While pricing distorts gasoline sales, cooling inflation elsewhere is bringing current-dollar and inflation-adjusted figures in line. Real sales also were down 1.1%, and the revised November decline was just barely larger than the nominal figure at 1.1%. Current-dollar sales in December were nearly 29% ahead of February 2020. Real sales were almost 12% higher.
Retail inventories
Retail inventories barely moved in November after a notable decrease in October. Total retail inventories ticked up 0.1%, seasonally adjusted. Inventories of motor vehicles and parts rose by 1.1%, but all other retail inventories declined 0.3%. After 26 straight months of m/m gains, retail inventories excluding automotive have fallen for three straight months. The scope of the decreases implies more of an orderly drawdown than a major correction, which could further weaken freight demand. The ratio of inventories to sales in retail rose to 1.24 in November from 1.22 in October. However, motor vehicles and parts were the principal factor. The automotive sector’s ratio jumped to 1.56 from 1.5 in October. Excluding motor vehicles and parts, the retail ratio was essentially flat at 1.15.
The inventories-to-sales ratio in the key general merchandise sector continued to ease in November but only slightly so. Seasonally adjusted inventories in that sector are the leanest they have been since the end of 2021.
Changes in most other retail sectors were incremental, but building materials and garden supplies saw a large jump in the inventories-to-sales ratio.
Residential construction
Key indicators of residential construction activity were modestly weaker in December. Housing starts declined 1.4%, seasonally adjusted, and the Census Bureau also revised downward its preliminary figures for October and November. In a reversal of recent trends, single-family housing starts rose 11.3% while starts of units in multi-family buildings with five or more units fell 18.9%. Permits authorized for future construction decreased 1.6%. Single-family permits fell 6.5% for the tenth straight decrease. Multi-family permits, which have been far less consistent, were up 7.1%.
Overall housing starts in December were 12% lower than they were in February 2020. Single-family starts were down 12.4% while multi-family starts were down 9.9%. After a sharp – and upwardly adjusted – increase in housing unit completions in November, housing completions fell 8.4% in December. Housing units under construction remain at an all-time high.
Sales of existing homes
Sales of existing single-family homes declined for the 11th straight month in December, easing 1.1% to the lowest annualized rate since November 2010. One glimmer of good news is that the m/m decrease was the second smallest during the 11 months.
The National Association of Realtors attributed the continuing decline in sales not only to high mortgage rates but also to a limited supply of homes on the market. The inventory of single-family homes for sale at the current sales rate fell in December to 2.9 months, which is the tightest supply since May.
Sales prices remain highly elevated compared to the pre-pandemic period, but they have fallen for six straight months. The median sales price of single-family homes sold in December was $372,700, down more than 11% from June’s record of $420,900 but up nearly 37% from the February 2020 median price of $272,800.
Mortgage rates
Mortgage rates declined in the latest week to their lowest level since September. The average rate on a 30-year fixed-rate mortgage eased nearly two-tenths of a point to 6.15%. Freddie Mac said that declining rates are boosting the housing market but that the supply of homes remains a concern.
Producer Price Index
Falling energy prices and a tamer environment for many other items in December resulted in the largest drop in the Producer Price Index since April 2020. The PPI for final demand declined 0.5%. The PPI for final-demand goods saw an even sharper drop of 1.6%. The energy index fell 7.9%, and the food index declined 1.2%.
Excluding food, energy, and trade services, the PPI for final demand ticked up just 0.1%, which is the smallest increase since one of the same scope in November 2020. Pricing for some key industrial commodities continues to ease. The PPI for steel mill products declined 2.7% for the seventh straight decrease. The PPI for lumber was down 4.5% for the fifth straight drop.
PPIs for freight transportation services were mixed. The general freight truckload PPI increased 1%, but specialized long-distance was down 1.9%, and LTL declined 3.2% – the largest drop since July. The PPI for rail intermodal fell 2.4% after a 3.1% increase in November. The freight brokerage PPI ticked up 1% after the record 11.1% plunge in November.
Unemployment benefits
Announcements of major layoffs are grabbing headlines, but comprehensive data continues to show a low level of claims for unemployment benefits. In the latest week, first-time claims for benefits fell by 15,000 to 190,000, seasonally adjusted, which is the lowest level since April aside from a week in September that also was 190,000.
After a couple of weeks of notable declines, continued claims for unemployment benefits rose by 17,000 to 1.65 million. Continued claims have taken a step up since mid-November and are running at close to their highest level in about a year.
Diesel and petroleum prices
The national average price of diesel declined 2.5 cents to $4.524 a gallon during the week ended Jan-uary 16. Coupled with the decrease in the previous week, diesel prices are now at their lowest level since the week ended February 28, although they are 42 cents higher than they were that week. Prices are about 80 cents higher y/y.
The Central Atlantic region was an outlier with a 16.4-cent drop in the average price. As of the latest week, only three regions are seeing average prices above $5 a gallon: The Central Atlantic, New England, and California. The first two easily could fall below $5 a gallon in the next week or two.
The underlying factors behind price movements have not changed much recently. West Texas Inter-mediate continues to trade mostly between $75 and $80 a barrel. Distillate inventories declined in the latest week, but the change was not sharp.
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