- Consumers are undeterred by higher prices as retail sales are robust.
- Consumer sentiment slips.
- Initial jobless claims drop to a new pandemic low.
The trend in new daily COVID-19 cases accelerated higher last week, and consumer sentiment lost ground.
Retail sales were much stronger than expected in October as consumers keep spending despite higher prices. Inflation did play a role in the spending, but even controlling for price increases, retail sales exceeded expectations.
New construction trends were mixed in October as starts declined with labor and supply challenges, but permits increased, which is more important for the longer-term trend.
New and continuing jobless claims declined in the latest data to reach new lows for the pandemic.
Retail sales robust: Retail sales were much stronger than expected in October, as the initial estimate showed a seasonally adjusted total increase of 1.7% when an increase of 1.4% was expected. September sales were also revised up.
Purchases at dealerships strengthened against other goods as sales excluding motor vehicles and parts increased 1.7% in October while sales of motor vehicles and parts were up 1.8%.
The largest gainers were: non-stores (e-commerce, +4.0%); electronics and appliance stores (+3.8%); building material and garden equipment supplies stores (+2.8%); and department stores (+2.2%). The only declines were in clothing and clothing accessories stores (-0.7%) and health and personal care stores (-0.6%).
With holiday spending starting early, retail sales were up 16.3% in October compared with a year ago. Compared to October 2020, 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, but even controlling for inflation, retail sales exceeded expectations in October. Higher prices are not dissuading consumers from spending.
Construction mixed: Residential construction in October was mixed, but growth in permits was much more important for growth ahead than the decline in starts. The seasonally adjusted annualized rate of starts declined 0.7% when an increase of 1.5% had been expected. However, permits increased 4.0% when growth of 2.8% had been expected.
After the October decline, starts were barely up (0.4%) from last October but up 15.3% compared to October 2019. Permits were up 3.4% from a year ago and up 9.3% compared to 2019. Permits lead starts, so the permitting pace at 1.650 million units was higher than the 1.520 million starts pace, and that is an indication that starts will increase in future months. Material shortages and associated increases in costs, as well as labor shortages, have been holding back activity this year and likely played a role in the starts decline in October.
Single-family activity drove the decline in October as single-family starts were down 3.9% in October while multifamily starts were up 7.1%. In permits, both single-family and multifamily increased in October. Compared to 2019, single-family permits were up 16%, but multifamily permits were down 1%. Multifamily trends are more volatile in this government-sourced survey data. With rent increases accelerating, multifamily is likely to grow in the future.
Sentiment slips: The daily index of consumer sentiment from Morning Consult declined in five of the last seven days before, producing a 1.1% decline week-over-week. As a result, sentiment is up only 0.4% for the month after declining 5.5% in July, 3.1% in August, 0.8% in September, and 1.7% in October. The Morning Consult Index as of Friday was down 21.2% since February 29, 2020. Friday’s index level is where it was in late January.
Joblessness mixed: As of November 6, 2.08 million Americans remain on traditional unemployment benefits, which are limited to at most six months of coverage. The broadest measure of continuing claims, which had included pandemic unemployment assistance before it ended in September, inexplicably increased by 619,000 to 3.2 million in the latest data. This is likely because of a large state processing a backlog of claims as the trend runs counter to declines occurring in every type of jobless claims. Because of that increase, the total number of people receiving some form of benefit is about 1.1 million higher than the 2.1 million level prior to the pandemic beginning.
Initial claims declined last week to a pandemic low of 268,000 from an upwardly revised 269,000 the prior week. Weekly initial claims are falling toward the 212,000-weekly average for the first 11 weeks of 2020 leading up to the pandemic and the 218,000-weekly average in 2019.
An Auto Market Report video will be published in Smoke on Cars on Tuesday, November 23.