- Continuing jobless claims are now lower than they were before the pandemic.
- New construction looks strong with permitting at its highest since May 2006.
- Retail sales were stronger than expected in January.
COVID-19 cases driven by the omicron variant surged to record levels in January but have been declining rapidly for more than four weeks. They are now down 85% from the peak. COVID, inflation, the weather and stock market volatility have weighed on consumer sentiment so far in 2022, but none of that kept consumers from spending at retailers in January.
Continuing jobless claims are now lower than they were before the pandemic began, but initial claims increased last week and continue to be higher since December.
New construction looks to be strong in 2022, as permitting increased again in January and is at the highest level since May 2006. Existing home sales defied expectations and increased in January despite record low inventory and mortgage rates moving higher.
Retail sales soar: Retail sales were stronger than expected in January, as the omicron wave of COVID-19 did not depress spending as much as initially expected. The initial estimate showed a total monthly increase of 3.8% when an increase of 2.0% was expected. This followed a weaker than expected and downwardly revised December result that was impacted by omicron. In addition, holiday sales were pulled forward into November because of widely covered supply shortages.
Purchases at auto dealers outperformed the market as sales excluding motor vehicles and parts increased 3.3% while sales of motor vehicles and parts increased 5.7%.
It was a mixed month for retailers with some clearly impacted by COVID and shifting purchase patterns. Sporting goods, hobby, book and music stores (-3.0%), gas stations (-1.3%), and food service and drinking places (-0.9%) were the largest decliners. Non-store retailers (+14.5%), motor vehicle and parts dealers (+5.7%), and furniture, home furnishing, electronics, and appliance stores (+5.2%) were the largest gainers.
Retail sales were up 13% from a year ago. Compared to last year, no major category for retail sales was down. Retail sales are measured in dollars, so higher inflation plays a role in the increases being measured. The biggest year-over-year gainers were gas stations (+33%), food services and drinking places (+27%), and clothing (+22%).
Construction looks positive: Residential construction results were mixed in January, but the underlying trend remains very positive. The seasonally adjusted annualized rate (SAAR) of starts declined 4.1%, when a smaller decline had been expected.
Permits increased 0.7% when a decline of 7.2% had been expected following a large increase of nearly 10% in December. Permitting fee and rule changes can cause big swings in December activity, but with the pace increasing further in January, the recent gains represent fundamental growth in the new construction pipeline.
The starts decline was likely weather and COVID related. After the January decline, starts were up 0.8% from a year ago and up 31.7% compared to January 2019. Permits were up 0.8% year over year and up 46.6% compared to 2019. Permits lead starts, so the permitting pace at 1.899 million units was higher than the 1.638 million starts pace, an indication that starts will increase substantially in future months.
Material shortages and associated increases in costs as well as labor shortages held back activity in 2021. Single-family starts declined 5.6% in December while multifamily declined 0.8%. In permits, single family increased 6.8% in January while multi-family declined 8.3%. Compared to 2019, single family permits were up 50%, while multi-family permits were up 42%. With the cost of housing jumping, the country needs more construction. The total permitting pace in January was the highest since May 2006.
Home sales rise: Existing home sales increased in January when a decline had been expected with supply tight and mortgage rates moving higher. The pace of sales increased to the fastest pace since last January. The existing home sales SAAR increased 6.7% to 6.50 million from a downwardly revised 6.09 million in December. At the January rate, existing home sales were down 2.3% from a year ago but up 30.8% compared to January 2019.
Inventory declined to 860,000 units, which was down 16.5% from a year ago to a new record low. The National Association of Realtors reported that 79% of the homes sold in January were on the market for less than a month, and the typical time on market was 19 days, which was just two days more than the record low that existed from April through September. The months’ supply of homes for sale fell to a record low of 1.6 months, which about a quarter of what is considered normal. The median sales price declined to $350,300, which was up 15.4% from a year ago.
Employment improves: As of February 5, 1.59 million people were on traditional unemployment benefits, which was 122,000 lower than the claims level before the pandemic began. The broadest measure of continuing claims was 2.06 million in the latest data from the week ending January 29. The total number of people receiving some form of benefit is 39,000 lower than the 2.1 million level prior to the pandemic beginning.
However, initial claims increased in the latest data as we are still seeing the impact of omicron cases in the numbers for initial claims. They increased 23,000 last week to 248,000 from an upwardly revised 225,000 the prior week. Weekly initial claims remain higher than they were leading up to the pandemic this year, but they had fallen to levels below the pre-pandemic trend back in December.
The next Auto Market Report video will be published on Smoke on Cars on Tuesday, March 1.
Save the date: The Q1 2022 Cox Automotive Industry Insights and Sales Forecast Webcast will be held on Monday, March 28, 1 p.m. EDT. RSVP to attend.
Jonathan Smoke is the chief economist at Cox Automotive.