What I Saw Last Week
U.S. Retail Sales were, again, a disappointment with total sales rising by just 1% and core sales (ex-auto) dropping by 0.1%. I was looking for total sales to have risen by 0.6% and core sales up by 0.4%.
The weak spots for retail sales in September were food services and drinking places (-1.8%), gasoline stations (-0.8%), department stores (-0.8%), health and personal care stores (-0.3%), and grocery stores (-0.1%). There were some areas of strength, notably, non-store retailers – that includes e-commerce – rose 1.1%, furniture and home furnishing stores were also 1.1% higher, electronics and appliance store sales rose 0.9%, and sales at motor vehicle and parts dealers rose by 0.8%.
The takeaway from the report is that core retail sales, which factor into GDP growth models, have not seen significant growth and this may factor negatively for Q-3 real GDP growth prospects.
Builder confidence in the market for newly-built single-family homes rose one point to 68 in October according to the NAHB Housing Market Index. I was expecting to see no change from the September level.
Notably, builder confidence levels have held in the high 60’s since June of this year as they continue to see solid housing demand, fueled by a growing economy and a nearly 50-year low for unemployment. Additionally, lumber prices have declined for three straight months from the elevated levels seen earlier this summer and that has also helped to reduce some cost pressures. That said, builders will need to manage supply-side costs to keep home prices affordable and that is a significant task.
September Housing Starts dropped by 5.3% month-over-month to a seasonally adjusted annual rate of 1.201 million units. I had expected a smaller drop to 1.221 million.
Single family starts dropped by a more modest 0.9% to 871,000 but there was a significant contraction in multifamily starts that dropped by 15.2% to 330,000.
Total starts were up 29.0% in the Northeast (single-unit down 6.7%); down 14.0% in the Midwest (single-unit up 10.2%); down 13.7% in the South (single-unit down 6.8%); and up 6.6% in the West (single-unit up 7.0%).
The number of units under construction at the end of the period stood at a seasonally adjusted annual rate of 1.129 million. That left the third quarter average at 1.124 million, up less than 0.1% from the second quarter average, so it won’t account for much in terms of a positive input into Q-3 GDP growth forecasts.
U.S. Building Permits were down 0.6% to a seasonally adjusted annual rate of 1.241 million – I had anticipated a slight rise to 1.273 million – although the drop was solely due to a 9.3% decline in permits for buildings with five units or more; single-family permits were up 2.9% to 851,000.
The takeaway from the September Housing Starts and Building Permits report is that the supply of new homes isn’t picking up fast enough to meet the demand for new homes at more affordable price points. Accordingly, overall home sales activity will continue to be curtailed by affordability constraints.
U.S. Existing Home Sales in September came in at an annual rate of 5.15 million units – I had anticipated a smaller drop to 5.3 million. This represents the lowest number of sales (on an annualized basis) since November of 2015. Total sales were 4.1% lower than the same period a year ago.
Existing home sales across regions showed the Northeast down by 2.9%; the Midwest unchanged; the South down by 5.4%; and the West 3.6% lower.
The inventory of homes for sale at the end of September decreased from 1.91 million to 1.88 million. The inventory was up 1.1% from a year ago. Unsold inventory stood at 4.4 months of supply versus 4.3 months in August. This is below the 6.0-month supply typically associated with a more balanced market.
The takeaway from the report is that home sales activity was pressured by the limited supply of lower-priced homes and the affordability constraints presented by higher mortgage rates.
What to Watch for This Week
U.S. New Home Sales rose 3.5% to a seasonally adjusted annual rate of 629,000 in August and I anticipate that the September figure will show a slight increase to 630,000.
The NAR Pending Home Sales Index for September should show a drop of 0.2% as overall sales velocities continue to slow.
The first take on U.S. growth in the third quarter of 2019 should show GDP rising by 3.3% – down from the Q-2 growth rate of 4.2%.
I anticipate that the final Consumer Sentiment figure for October will remain at the early month level of 99.0.