Retail Sales Soar – Market Update
Kevin Graham9-Minute Read
May 07, 2021
Spring is in full force, the weather is getting warmer and there’s optimism in the air. The economy is heating up to match. Let’s get into it!
This portion of the report was put together with the assistance of Econoday.1
International Trade In Goods And Services
This particular report has been released twice since the last time we published a Market Update, so let’s unpack both February and March.
In February, the U.S. trade deficit was up $2.9 million to $71.1 billion overall. The goods deficit rose $2.8 billion at $88 billion. At the same time, the surplus we have in services production fell $500 million $16.9 billion in February.
Turning to March, the deficit got even worse at $74.4 billion. Exports were up $12.4 billion, rising 6.6% to $200 billion. Industrial supplies and materials, capital goods and consumer goods all pushed exports higher.
Meanwhile, imports were up 6.3% to $274.5 billion. More consumer goods were imported and capital goods for the way as well along with industrial supplies and materials.
The goods deficit in March was up $3.6 billion at $91.6 billion. Meanwhile, the surplus in services was down $300 million to $17.1 billion.
Producer Price Index (PPI)
In a preview of a rise in prices for consumers, prices were up 1% on the production side in March and have risen 4.2% since the same time last year. When taking out food and energy, prices were up 0.7% and 3.1% on the year. Finally, when further removing trade services, prices and had risen 0.6% and 3.1% since March 2020.
Steel prices were up quite a bit, rising 17.6% in March. Additionally, energy prices rose 5.9% on their own. Costs for transportation and warehousing were up 1.1%. There were also increases of more than 10% in the price of plywood and paper. Food prices were up 0.5%.
With stimulus money hitting the bank accounts of many Americans recently, inflation is a worry of some analysts. The head of the Federal Reserve, Jerome Powell, believes price increases of this magnitude are likely temporary. It’s also possible that the backup in the Suez Canal had a lot to do with this. It’ll be interesting to watch going forward.
Consumer Price Index (CPI)
Prices on the consumer side were up 0.6% in March and have risen 2.6% since last March. This represents the highest year-over-year increase in inflation since August 2018.
However, it’s hard to say what this means for policy because as mentioned above, the Fed believes this may be a one-time effect given stimulus checks and interrupted shipments from the Suez Canal. Additionally, Fed leadership has indicated a willingness to let inflation run above 2% for a while because inflation has been stagnant for some time.
It’s also worth noting that gains are somewhat uneven. In taking its measurements, the Federal Reserve typically excludes food and energy. While this metric was up 0.3% on the month, the 1.6% annual rate is still well below the Federal Reserve’s 2% goal for inflation. To get an idea of just how uneven, let’s break down the categories a bit.
There was a 9.1% uptick in gas prices last month, contributing to a 5% increase in energy costs that was the highest monthly gain since August 2012. Gasoline alone was almost half of the overall monthly inflation increase. Food was only up 0.1% on the month and 3.5% on the year
Shelter prices were up 0.3% for the month and have gone up 1.7% on the year. It’s worth noting that this is a much lower increase than we’ve seen in any of the other home price metrics. The homeowner expenses are calculated based on equivalent rent in this index, which doesn’t track with home prices necessarily.
The cost of transportation was up 1.8% from February but down 1.6% since last March. Meanwhile, the cost of recreation was also up. Offsetting this were downward moves in apparel and education.
In a number definitely helped by stimulus checks in Americans’ pockets, retail sales were up 9.8% in March. Taking out vehicle sales, retail purchases were up 8.4%. When further excluding gas from that number, the increase was 8.2%. Meanwhile, increases in a control group that’s not as prone to seasonal fluctuations was up 6.8%.
If you’ve been following the housing market at all, you know that the cost of construction supplies is way up right now and this was reflected in a 12.1% increase in building materials. Meanwhile, there was also a 10.5% increase in electronics and appliances. Restaurant sales also had big gains.
Sporting goods sales were up 23.5%. The sports teams in Detroit aren’t doing well, but it’s good to think about people preparing for local youth leagues and the golf course. Finally, clothing sales were up 18.3%. Retail sales are up 27.7% since this time a year ago.
Industrial production was up 1.4%, with manufacturing rising 2.7% for the month. It wasn’t all good news as the capacity utilization rates in factories was 74.4%, down from 75.7% in February.
Business equipment production was up 2.7% in March and aircraft production was 4.1% higher. I’m going to be optimistic and take this is a sign that Americans are getting back in the air and thinking about summer vacations this year.
Mining was down 5.7% and continues to have static drops. Meanwhile, utility production was down 11.4% given warm temperatures for March in much of the country.
Housing Market Index
In April, builder optimism rose 1 point to 83 overall, a very high number despite slowing down from incredible peaks at the beginning of the year. All of the individual components are also strong.
Traffic of prospective buyers going through homes was up 3 points at 75. Meanwhile present sales were up 1 point at 88. The lone down number was sales over the next 6 months, which are at 81, falling 2 points.
New Residential Construction
Supply is still tight, but this report is unequivocally good news for those looking to find a home right now.
Housing construction permits were up 2.7% at 1.766 million. This is 30.2% higher than it was a year ago. In that group, single-family authorizations were up 4.6% at 1.146 million, while multifamily authorizations in buildings with five or more units were 508,000.
On the housing starts side, there were gains of 19.4% since February at 1.457 million, 37% higher than last March as single-family starts were up 15.3% for the month at 1.074 million to go along with 477,000 multifamily units starts.
Finally, looking at completed construction, this was up 16.6% at 1.58 million, including a 5.3% uptick in single-family completions at 1.099 million. There were 476,000 multifamily units finished.
Existing Home Sales
In March, existing home sales were down 3.7% at a seasonally adjusted annual rate of 6.01 million. However, this is still 12.3% higher than they were last year and represents a quickening of the pace of annual sales appreciation.
The story here is that limited inventory continues to hold down sales. At the current pace of sales, the supply of inventory is 2.1 months. This is a slight uptick from February, but it does mean that there aren’t very many houses on the market. And those that are getting sold are being snapped up like that. For context, a housing market considered in balance between buyers and sellers has about 6 months’ worth of supply.
While mortgage rates are still low, it’s going to help to be really confident in your budget because the median price of the listing home is up 17.2% in the last year to $329,100, according to the National Association of REALTORS®.
New Home Sales
Sales of new homes for March were up 20.7% to 1.021 million. This blew expectations out of the water by a wide margin. Months going all the way back to December were also revised 151,000 units higher. The 3-month average of new home sales was up 2.6% to 959,000. This is important because the metric can be volatile month-to-month.
Sales were supported somewhat by builders lowering prices as the median home price fell 4.4% to $330,000 in the new build market. Prices were as high as $365,300 in December, during a post-lockdown buying frenzy. All the sales came at the cost of supply, which fell from 4.4 months to 3.2 months.
Durable Goods Orders
Durable goods orders were up 0.5% overall and would have risen 1.6% with transportation orders taken out. When looking at core capital goods, excluding aircraft and defense-related orders, core capital gains were up 0.9%.
Transportation was down 1.7% and this pulled the number below analysts’ consensus expectations. There was a 3.6% increase in fabricated metal products.
Case-Shiller Home Price Index
On both a seasonally adjusted and actual basis, prices were up 1.2% in the month of February and have gone up 11.9% on the year. This is a 3-month average, so the effect of increased mortgage rates in February is a bit blunted. Rates have come down again since then, so we are in a real boom market.
FHFA House Price Index
This index is based solely on conventional loans and isn’t a 3-month average. However, a very similar story is told. Home prices were up 0.9% for the month and 12.2% for the year.
Consumer confidence was up 4.7 points to 121.7. Among the headline numbers, only 13.2% of people think jobs are hard to get, which was down 5.3% for the month. Meanwhile, better than 11% more people think that jobs are plentiful at 37.9%.
In terms of assessments of the future, people expect their incomes to rise in the next 6 months, but lots of people seem fewer jobs ahead. Meanwhile, buying plans are up for both cars and homes. There’s also much optimism for the stock market where 41.6% of people see rising prices in the near future with only 25.4% of people expecting prices to go down.
Gross Domestic Product (GDP)
GDP was up 6.4% in the initial reading of the first quarter. This level of economic growth is welcome after a slow down to 4.3% growth in the second quarter as we still try to climb back to pre-pandemic levels.
Consumer goods spending was up 23.6%, and service spending was up to an annual rate of 4.6%. Together the spending on the consumer side made up for 7% of growth. Government contribution to GDP was 6.3%. However, inventories and exports were down as were nonresidential fixed investments. Residential investment was up 10.8%, offsetting some of this. Personal expenditures were up 10.7% compared to the prior annual rate of 2.3%, showing a real rebound.
Pending Home Sales Index
There was a 1.9% uptick in the number of homes under contract for sale. This brought the index level up to 101.3. This is a leading indicator for existing home sales in April.
Personal Income And Outlays
Personal incomes were up 21.1% in March on the backs of $1,400 stimulus checks for many Americans. Meanwhile, expenditures on personal consumption were up 4.2%, spending on goods is up 19% since before the pandemic and service spending is down 3%.
Because of the stimulus checks, the savings rate skyrocketed to 27.6% of overall income. Overall prices were up 0.5% and 2.3% for the monthly and yearly increments. When looking at core inflation, prices were up 0.4% for the month and 1.8% higher for the year. This number is important because it’s below the 2% core inflation that the Federal Reserve would like to see.
ISM Manufacturing Index
While growing at a slightly slower rate, the manufacturing number continues to be strong at 60.7, compared to 64.7 in March.
New orders came in at 64.3. While slightly slower than growth in recent months, this still represents fantastic growth. Backlogs were down 0.7 points at 68.2. There’s growth in this area, but slower growth means slightly lower potential for hiring. Hiring was down 4.5 points in April at 55.1. What’s keeping growth from going through the roof here may just be a lack of available labor.
Prices paid are also very high at 89.6. This makes it somewhat difficult to get raw materials at this point.
The Federal Reserve chose to keep rates the same and continued to invest in mortgage-backed securities. Although the short-term rates the Fed controls don’t directly impact the mortgage rates, they tend to follow the same patterns. With rates again below 3%, it remains a great time to buy or refinance if you’re looking.
The average rate on a 30-year fixed mortgage with 0.7 points paid in fees was up a single basis point to 2.98%. This is down from 3.23% at the same time a year ago.
Looking at shorter-term loans, the average rate on a 15-year fixed mortgage with 0.7 points paid was up a couple of basis points to 2.31%. This is down from 2.77% in March 2020.
Finally, the average rate on a 5-year treasury indexed, hybrid adjustable-rate mortgage (ARM) with 0.3 points paid was down 19 basis points to 2.64%. This has fallen from 3.14% last year.
We understand if all of these numbers and data aren’t necessarily your thing. The good news is, we’ve got plenty of other home, money and lifestyle content to share with you. Check out these ideas for quaint and cozy cabin decor.
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