- Consumer spending rises due to inflation.
- The job market is the strongest part of the economy.
- New construction looks strong; home sales down on low inventory.
COVID-19 cases are now down 96% from the peak in mid-January, but the war in Ukraine and accelerating inflation have weighed on consumer sentiment in March. Still, the consumer kept spending at retailers in February, but inflation is what drove spending higher for the month.
The job market continues to be one of the strongest parts of the economy as continuing jobless claims keep falling and are lower than they were before the pandemic began.
New construction looks to be strong in 2022, as starts increased in February, permitting still exceeds starts, and both are up year over year.
Existing home sales fell in March as low supply persists and higher prices and higher mortgage rates are pushing up payments dramatically.
Inflation drove higher consumer spending: Retail sales were slightly weaker than expected in February, but inflation drove the month-over-month gain. The initial estimate showed a total monthly increase of 0.3% when an increase of 0.4% was expected. This followed a stronger than expected and upwardly revised gain of 4.9% in January during the peak of the omicron wave.
Purchases at auto dealers outperformed the market as sales excluding motor vehicles and parts increased 0.2% while sales of motor vehicles and parts increased 0.8%.
It was another mixed month for retailers. Non-store retailers (-3.7%), health & personal care stores (-1.8%), and furniture and home furnishing stores (-1%) were the largest decliners. Gas stations (+5.3%), food service and drinking places (2.5%), and miscellaneous store retailers (+1.9%) were the largest gainers.
Retail sales were up 17.6% from a year ago. Compared to last year, no major category for retail sales was down. The biggest year-over-year gainers were gas stations (+36%), food services and drinking places (+33%), and clothing (+31%).
Retail sales are measured in dollars, so higher inflation plays a role in the increases being measured. Adjusted for inflation using the CPI, retail sales in February declined 1% from January and were up 4.5% from a year ago.
Construction mixed: Residential construction results were mixed in February but the underlying trend remains positive. The seasonally adjusted annualized rate (SAAR) of starts increased 6.8% when a smaller increase had been expected. Permits declined 1.9% when a larger decline had been expected.
The starts increase was likely assisted by more favorable weather and less severe COVID conditions in February compared to January. After the February increase, starts were up 22.3% from a year ago and up 54.9% compared to February 2019. Permits were up 7.7% from a year ago and up 42.6% compared to 2019.
Permits lead starts, so the permitting pace at 1.859 million units was higher than the 1.769 million starts pace, and that is an indication that starts should continue to increase in future months.
Material shortages and associated increases in costs as well as labor shortages held back activity in 2021 and could continue to hold back activity in 2022. Single-family starts increased 5.7% in February while multi-family increased 9.3%. In permits, single family declined 0.5% in February while multi-family declined 4.4%. Compared to 2019, single-family permits were up 49%, while multi-family permits were up 33%.
With the cost of housing jumping, the country needs more construction. The total starts pace in February was the highest since June 2006. That strong starts number followed the highest permitting pace in January back to May 2006.
Home sales fall: Existing home sales declined in February more than had been expected with supply tight and mortgage rates moving higher. The pace of sales declined to the slowest pace since last August.
The existing home sales SAAR declined 7.2% to 6.02 million from a downwardly revised 6.49 million in January. At the February rate, existing home sales were down 2.4% from a year ago but up 13.4% compared to February 2019.
Inventory increased to 870,000 units, which was down 15.5% from a year ago and just 20,000 more than the record low in January.
The National Association of Realtors reported that affordability is taking a toll on demand as monthly payments have risen by 28% from a year ago with higher prices and higher mortgage rates. In February, 84% of the homes sold were on the market for less than a month, and the typical time on market was 18 days, which was two days less than last year.
The months’ supply of homes for sale increased slightly to 1.7 months from a record low of 1.6 months in January. This level of supply is about a quarter of what is considered normal. The median sales price increased to $357,300, which was up 15.0% from a year ago.
Employment improves: As of March 5, 1.42 million people were on traditional unemployment benefits, which was 296,000 lower than the claims level before the pandemic began.
The broadest measure of continuing claims was 1.97 million in the latest data from the week ending February 26. The total number of people receiving some form of benefit is 134,000 lower than the 2.1 million level prior to the pandemic beginning.
Initial claims declined by 15,000 last week to 214,000 from an upwardly revised 229,000 the prior week. Weekly initial claims are just 2200 higher than they were leading up to the pandemic this year, but they had fallen to levels below the pre-pandemic level back in December.
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.
The next Auto Market Report video will be published on Smoke on Cars on Tuesday, March 29.
Jonathan Smoke is the chief economist at Cox Automotive.