- Job picture remains strong.
- Housing market is suffering from soaring mortgage rates.
- Consumers keep spending as retail sales stay high.
The job market stays strong as continuing claims remain below pre-pandemic levels.
The housing market is suffering from the dramatic increase in mortgage rates experienced so far this year. Existing home sales declined for the sixth month in a row in July. New construction has also slowed.
Retail sales in July showed no signs of the consumer pulling back spending. The initial estimate for July showed spending as unchanged from June, but other slices of the data revealed much stronger than expected spending outside of spending on autos and gas. Adjusted for inflation, spending increased in July from June and was up year to year.
Construction slows: Residential construction slowed again in July as higher rates and a slowing economy are causing drops in demand for new single-family and multifamily homes.
The seasonally adjusted annualized rate (SAAR) of starts declined 9.6% when a decline of 2.1% had been expected. However, permits only declined 1.3% when a larger drop of 3.3% had been expected. The starts decline was more weighted to single family with a 10.1% decline and an 8.6% decline in multifamily.
After the July decline, starts were down 8.1% from a year ago but still up 17.4% compared to July 2019. Permits were up 1.1% from a year ago and 22.9% compared to 2019. Permits lead starts, so the permitting pace at 1.674 million units was much higher than the 1.446 million starts pace, which usually indicates that starts should continue to increase in the coming months. However, with continued declines in new home sales, we are likely to see starts failing to materialize on already permitted homes in future months.
In permits, single family declined 4.3% in July while multifamily increased by 2.8%. Compared to 2019, single-family permits were up 8%, while multifamily permits increased 47%. Rising rents contribute to inflation, so the country needs more multifamily construction.
Consumers keep spending: Retail sales numbers indicate no signs that the consumer is pulling back. The initial estimate for July showed spending as unchanged from June, but other cuts revealed much stronger than expected spending outside of spending on autos and gas. The auto sector underperformed as sales excluding motor vehicles and parts increased 0.4% while sales of motor vehicles and parts declined 1.6%. As gas prices declined, spending at gas stations declined 1.8%.
More categories were up than down. General merchandise stores (-0.7%) and clothing and clothing accessories stores (- 0.6%) were also down. Non-store (ecommerce) retailers (+2.7%), miscellaneous (+1.5%), and building material and garden equipment stores (+1.5%) were the largest gainers.
Retail sales were up 10.3% from a year ago on a nominal basis. Compared to last year, only furniture, home furnishing and electronics (- 2.9%) were down. The biggest year-over-year gainers were gas stations (+40%), non-store (+20%), miscellaneous stores (+18%) and food services and drinking places (+12%). Retail sales are measured in dollars, so higher inflation plays a role in measured increases. Adjusted for inflation using the CPI, retail sales in July increased 0.1% and were up 1.7% from a year ago.
Home sales fall: Existing home sales fell more than expected in July and extended the decline streak to six straight months. The market continues to see the impact of a substantial increase in mortgage rates that rivals any other period of change in modern history.
The sales pace in June declined to the slowest since June 2020. The existing home sales SAAR declined 5.9% to 4.81 million from 5.11 million in June. At the July rate, existing home sales were down 20.2% from a year ago and down 11.4% compared to July 2019.
Inventory increased to 1.31 million units, which was unchanged from a year ago. The National Association of Realtors describes the downturn in sales and homebuilding as a housing recession in sales, but not in prices. Inventory is still moving quickly, as 82% of the homes sold in July were on the market for less than a month, and the typical time on the market was 14 days, the same as June and three days less than July last year. The months’ supply of homes for sale increased to 3.3 months from 2.9 months in June, but that supply level is just over half of what is considered normal.
The median sales price declined to $403,800, up 10.8% from a year ago.
Jobless claims dip: Seasonally adjusted initial jobless claims declined by 2,000 to 250,000 for the week ending August 13. Non-seasonally adjusted claims declined by 4,500. Both measures had been showing increases since spring but now appear to be trending back down.
Continuing claims, which represent people who previously filed and remain on traditional unemployment compensation, increased by 7,000 week-to-week, bringing the total up to 1.44 million as of the week ending August 6. That level of continuing claims was 326,000 lower than before the pandemic.
The broadest measure of continuing claims increased by 3,000 to 1.48 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is up 128,000 over the last four weeks but is 621,000 lower than the pre-pandemic level.
The jobless claims data reflect a very strong labor market that is not showing clear signs of deterioration.
JOIN US: The Q3 Cox Automotive Industry Insights and Forecast Call will be held on Wednesday, September 28. Jonathan Smoke and the Industry Insights team will host a conference call to review industry performance in the third quarter and what is expected for the remainder of the year. RSVP to attend.
Jonathan Smoke is chief economist at Cox Automotive.