- Consumer spending reaccelerated in July.
- Residential construction looks like it increased in July.
- The labor market remained strong despite higher jobless claims.
The initial retail sales report for July showed a reacceleration in consumer spending. Adjusted for inflation, retail sales increased over June and were barely down compared to a year ago.
Residential construction starts appeared to increase in July, but only because June was revised down. Housing permits were little changed, while housing starts exceeded permits, an indication that starts will decline in future months. Multifamily housing saw declines in starts and permits while the single-family segment increased modestly.
The labor market is not as strong as it was a year ago. Jobless claims are higher than they were at the same time a year ago, but continuing claims remain low and do not represent significant stress in the labor market.
Consumer Spending Reaccelerated in July
The initial retail sales report for July showed a reacceleration in consumer spending in addition to upward revisions to June. The 0.7% increase was more than the 0.4% increase expected and an acceleration from the upwardly revised 0.3% increase in June.
The auto sector underperformed the rest of the retail market as sales excluding motor vehicles and parts increased 1.0% while sales of motor vehicles and parts declined 0.3%. Category-level performance was mixed in July, but fewer categories were down than in June. Non-store (ecommerce) retailers (+1.9%) and sporting goods, hobby, book, and music stores (+1.5%) had the largest gains. Furniture, home furnishing, electronics, and appliances stores (-1.6%), miscellaneous stores (-0.3%), and motor vehicle and parts dealers were the only categories with declines.
Retail sales were up 3.2% from a year ago on a nominal basis and up from a 1.6% increase in June. Compared to last year, three major categories of 12 were down: gas stations (-20.8%), furniture, home furnishing, electronics, and appliance stores (-5%), and building materials and garden equipment (-3.3%). Motor vehicles and parts were up 7.6% year-over-year, while food services and drinking places (+11.9%) was the category up the most.
Adjusted for inflation using the Consumer Price Index, retail sales increased 0.6% for the month but declined 0.1% from last year. July had the strongest inflation-adjusted year-over-year performance since January.
Residential Construction Looks Like it Increased in July
Residential construction starts improved more than expected in July, but the increase was inflated by downward revisions to June. The level of starts for July was very close to expectations, and permits were little changed and weaker than expected.
The seasonally adjusted annualized rate of starts increased by 3.9% when an increase of 1.1% was expected, but June’s decline was revised to a drop of 11.7% from an initially estimated 8.0% decline. Permits increased just 0.1% when a 1.5% increase had been expected. The increase in starts was only in single-family as multifamily starts declined by 1.7%. After the July increase, total starts were up 5.9% from a year ago and up 16.6% compared to July 2019.
Permits were up by 7.8% compared to 2019 in single-family and up by 5.8% in multifamily. The underlying permit trends between single-family and multifamily moved in different directions month over month, with single-family increasing by 0.6% and multifamily declining by 1.0%. Permits were down 13.0% from a year ago in total, up 1.3% in single-family homes and down 30.8% in multifamily. Permits lead to starts, so the permitting pace at 1.442 million units was behind the 1.452 million starts pace, which indicates that starts will likely decline in future months.
The Labor Market Remained Strong Despite Higher Jobless Claims
Seasonally adjusted initial jobless claims declined by 11,000 for the week ending August 12 to 239,000. That was 25,000 more than we saw in 2020 before the pandemic began. Non-seasonally adjusted initial claims fell by 15,000 and were 32,000 lower than before the pandemic.
Continuing claims, representing people who previously filed and remain on traditional unemployment compensation, increased by 32,000 from the week before, moving the total up to 1.72 million as of August 5. That level of continuing claims was 171,000 lower than before the pandemic.
The broadest measure of continuing claims declined by 18,000 to 1.83 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is up 86,000 over the last four weeks but is 268,000 lower than the pre-pandemic level.
The labor market is not as strong as it was a year ago, and claims have increased in 2023, but continuing claims remain low and do not represent significant stress in the labor market.
Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.