Well, I am back from my adventure up north and already digging into the data that was released in my absence so here goes…

What I Saw Last Week

U.S. Retail Sales rose 0.5% in July following a downwardly revised 0.2% increase (from 0.5%) in June.  Excluding auto sales, core retail sales rose by 0.6% after rising by a downwardly revised 0.2% (from 0.4%) the prior month.

Retail

The takeaway from the report is that the downward revisions to June mitigated the July headline surprise. That point notwithstanding, core retail sales were up 0.5%, which will be a positive input for Q-3 GDP forecasts.

Builder confidence in the market for newly-built single-family homes dipped by one point to a 67 reading in August according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

HMI

The HMI component measuring current sales conditions dipped by one point to 73 while the component gauging expectations in the next six months took a single point drop to 72 and the metric tracking buyer traffic fell two points to 49.  Looking at the three-month moving averages for regional HMI scores, the South and West each held steady at 70 and 75, respectively, while the Northeast and Midwest each fell three points to 54 and 62, respectively.

The current economic expansion and firm job market should continue to spur demand for new single-family homes in the months ahead. That said, builders continue to monitor how tariffs and the growing threat of a trade war are affecting key building material prices, specifically lumber. These cost increases, in concert with rising interest rates, put upward pressure on home prices and continue to contribute to growing affordability challenges in many parts of the country.

U.S. Housing Starts rose 0.9% in July to a seasonally adjusted annual rate of 1.168M units following a downwardly revised 1.158M (from 1.173M) in June.  The number of units under construction at the end of the period totaled 1.122M units. That was a smidge below the Q-2 average of 1.123M, which points to a slight drag for Q-3 GDP forecasts.

Starts

The takeaway from the report is the recognition that single-family starts rose just 0.9% to 862,000, which is a modest pace that, as attested to above, likely reflects the headwinds builders are facing with higher costs for materials, labor, and land.

U.S. Building Permits increased 1.5% to a seasonally adjusted annual rate of 1.311M units from an upwardly revised 1.292M (from 1.273M) in June.

permits

Residential permits are up by 4.2% when compared to the same month in 2017.

The increase in permits does point to some easing of the inventory pressure in housing and is a welcome sign as a strong economy with continuing job and income growth, millennials aging into homeownership, and baby boomers living longer and more independently than ever will likely continue to drive demand and keep the pressure up on the housing market.

Consumer Sentiment in early August dropped to 95.3 from 97.9 in July.  The drop pushes the index back to a level last seen in September of 2017. The Current Economic Conditions Index declined to 107.8 from 114.4 in the final July reading and the Index of Consumer Expectations remained at 87.3.

Sentiment

In reading the data, a less favorable view of buying conditions due to prices was largely responsible for the pullback with the biggest decline recorded among households in the lower third of the income distribution curve.

Vehicle buying conditions were also viewed less favorably than at any time during the last four years, while home buying conditions were viewed less favorably than at any time in the past ten years!!  (I would suggest this was driven by affordability issues in concert with rising mortgage rates).

What to Watch for This Week

Data on U.S. Existing Home Sales in July is released on Wednesday and I am looking for very modest improvement from the annualized rate of 5.38M units seen in June to 5.40M units.

U.S. New Home Sales numbers are released on Thursday and I expect to see sales up to an annual rate of 645,000 units from 631,000 seen in June.

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