What I Saw Last Week

Retail Sales in June disappointed with an increase of just 0.2% (well below my forecast for 0.7% growth).  Excluding motor vehicles, retail sales increased a 0.4% in June, which matched May’s upwardly revised figure.

The June employment report signaled a strong increase in aggregate earnings and motor vehicle sales exceeded 17M (SAAR) for the first time since July 2006. Both of those factors were expected to drive retail sales growth in June, yet failed to provide the oomph needed to accelerate consumer demand.

It seems likely that consumers pocketed some of the extra earnings in June and increased their savings rate.

The NAHB Housing Market Index jumped again in July matching the 4 points increase seen in June to end up at 53.

At a level above 50, more builders now view sales conditions as good rather than poor. The July reading marks the first time since January that the index has been above 50.

Better employment data and economic growth for the second quarter have buoyed builder confidence as the summer progresses.

Washington State Employment numbers for June showed that the State added 9,100 jobs in the month (above my forecast for 6,400 jobs) and the Seattle metro area added 4,100 jobs (just a tad above my forecast for a 4,000 job increase).  The State unemployment rate dropped to 5.8% from 6.1% while the Seattle number dropped from 5% to 4.8% – I had anticipated the rates to remain static.

In all, these were very good numbers. The state has 54,400 more jobs now than at our previous peak back in 2008 while the Seattle area has gained all of the jobs lost in the recession plus another 44,900.

Looking at the unemployment rate, the last time that the Seattle area saw a figure of 4.8% was back in the summer of 2008!

Initial Unemployment Claims dropped from 305,000 to 302,000 and below my forecast for 311,000.

After stabilizing in the 310,000 – 320,000 range, the initial claims level has moved another leg down over the last couple of weeks. If these trends hold, we would expect to see monthly payroll growth close to 300,000.

Housing Starts were nothing but appalling with the June number dropping 9.3% to 893,000. I had called for a rise to 1.020M.

The drop in starts brought new residential construction levels to their lowest point since 863,000 homes were started in September 2013.

Multifamily construction was running hotter than its 12-month trend and was expected to decline. Those starts fell 9.9% to 318,000 in June from 355,000 in May.

The bigger concern is the new trend in single-family construction. This sector tends to produce stable trends yet starts have now fallen precipitously in both May (-2.6%) and June (-9.0%). Construction levels for new single-family homes are at their lowest point since 569,000 homes were started in November 2012.

These large drops seemingly go against the recent improvement in home builder sentiment with the July NAHB sentiment reading surpassing the expansion/contraction threshold.

Building Permits, also contracted from 1.005M to 963,000. Ugly all around.

Consumer Sentiment fell to 81.3 in the preliminary reading for July from 82.5 in June. I had called for an increase to 84.0.

Typically, sentiment levels follow changes in employment, gasoline prices, equity prices, and media reports. All of those factors have been strongly positive so far in July. The S&P 500 reached all-time highs, gasoline prices began a slow move downward, and layoff levels have fallen into a new lower range.

All in all, the improvements should have resulted in a large upward tick in sentiment but that failed to materialize.


What to Watch for This Week

Inflation, as measured by the Consumer Price Index should tick up a little. Look for an increase of 0.4%

Existing Home Sales should rise and I expect to see an increase to 5M from 4.89M (SAAR) seen in May.

Initial Unemployment Claims could pop back up a little. Look for 305,000.

New Home Sales are probably still going to contract. I am looking for a drop to 475,000 (SAAR) from 504,000 seen in May.