CCL Market Update: Retail Sales, Empire State Index, Business Inventories, Industrial Production, Home Builders’ Index, Housing Starts/ Building Permits, Beige Book, & Weekly Jobless Claims

Retail Sales

U.S. retail sales climb again in June after a jumbo gain in the prior month of May. Sales at retailers such as auto dealers, restaurants, and Internet sites rose again in June after huge gains in May, underscoring yet again the strength of the U.S. economy as spring turned to summer. Sales at retailers nationwide grew 0.5% last month, this matched what economists had forecasted. The increase last month followed an even bigger burst of spending in May, when sales grew a revised 1.3% up from the previously reported gain of 0.8%. Retail sales have increased 6.6% over the past 12 months, slightly above the long-run average since 1980. Retail sales have accelerated as gas prices have increased. Gas stations posted a 1% increase last month and sales are up a huge 21.6% for the year on year comparison. But, it’s not just gasoline or rising inflation that is helping to accelerate retail sales, in the spring Americans raised spending on a variety of goods and services, spurring businesses to increase both hiring and production. Sales, however, fell slightly at groceries and electronic stores, and declined sharply at department stores and outlets selling clothing, books and sporting goods. A combination of the Trump tax cuts, strong hiring and a falling unemployment rate has given Americans more confidence in the economy. This has led to a big rebound in spring after a lull in the winter season, resulting in a robust increase in gross domestic product in the second quarter. Yet the strong patch of growth has also raised worries about inflation and the prospect that the Federal Reserve could rapidly raise interest rates.

Empire State Index

The monthly survey of manufacturers in the state of New York, conducted by the Federal Reserve Bank of New York, fell 2. Points in July to a reading of 22.6. Any reading above zero in the index indicates improving conditions, economists polled expected a reading of 21. In the month prior, June, the index was at an eight month high of 25. The new orders index dipped 3.1 points to 18.2, while shipments index fell 8.9 points to 14.6. Indexes for unfilled orders and inventories also declined. The prices paid index fell 10 points buts was still at an elevated level of 42.7. Optimism about the future slipped as well, the index for future conditions fell 7.8 points 31.1. Economists believe the US manufacturing sector is on an impressive roll but there is concern of trade tension and that the could dampen this growth. Economists use this Empire data to gauge the national ISM manufacturing index. That index hit 60.2 in June, matching the second highest level in the expansion.

Business Inventories

Business inventories in the US rose 0.4% in May, while sales jumped 1.4% in the month. The ratio of inventories to sales, slipped to 1.34 from 1.35, this number represents how many months it would take to sell all the inventory one hand. One year ago, the inventory to sales ratio was at a higher 1.39. An increase to inventories adds to gross domestic product and is usually a sign of an expanding economy.

Industrial Production

US production of goods such as new trucks, planes, drilling rigs and consumer electronics rebounded in June as the economy hit overdrive in the spring. Industrial production rose 0.6% in June to more than offset the similarly sized decline in May. Production expanded by a large 6% annual pace in the second quarter and by 3.8% over the past year, reflecting a big pick up in growth after a less than stellar start to 2018. Many companies complain they can’t find enough skilled workers or get ready access to cheap supplies. If utilities and mining are excluded, productions of goods by US manufacturers rose by 0.8%. Auto makers stepped up production of cars and trucks by almost 8% after a fire at a major parts supplier temporarily disrupted supply chains in May. The mining industry raised output by 1.2% in another strong showing for one of the fastest growing sectors of the economy. Higher oil and natural gas prices are enticing drillers to extract more fossil fuels. Output of utilities, however, declined sharply for the second month in a row as the change in season led to lower use of residential power. The May utility output in May was revised to show a decline instead of its previous small gain. As a result, overall industrial production dropped 0.5% in May instead of the previously reported 0.1% gain. A measure known as capacity utilization that tracks whether factories are running at full tilt edged up 78% from 77.7%. While this is about 1.8 percentage points below the historic average, the rate of utilization is still at a multi year high. Both businesses and consumers stepped up big time in the second quarter as the economy grew at least 4% for its annual pace possibly even faster.

Home Builders’ Index

The National Association of Home Builder’ monthly confidence index was unchanged at 68 in July. This index number also matched economists forecasts of a flat reading in July. This flat level is considered healthy but it’s also the full year average from 2017, signaling there has been little progress since then. The index’s components were mixed; the current state of sales remained unchanged at 74, views of future sales fell 2 points to 73. The sub-index that tracks buyer traffic rose two points to 52, its highest reading since February. Any readings above 50 signals improving conditions.

Housing Starts/ Building Permits

Housing starts ran at a seasonally adjusted annual 1.173 million rate in June. Economists surveyed had forecasted a rate of 1.303 million. Builders broke ground on far4 fewer homes in June, signaling more of the uneven housing recovery rhythm. June’s pace of starts was 12.3% lower than a downwar4dly revised May, and 3% lower than levels a year ago. Permits, signaling future starts activity, were at a seasonally adjusted annual pace of 1.273 million. Builders are struggling to give buyers what they want due to higher input costs, this may be putting off many buyers by the long wait periods for new construction. Sentiment among home builders is steady with no increase seen, in a sign that the pace of construction isn’t likely to accelerate. In June’s release of residential construction, starts from both May and April were adjusted down. For the year to date figure, starts are 7.8% higher than in 2017 at this time, and permits are 5.7% higher.

Beige Book

The rapidly expanding US economy is running out of room to grow any faster as shortages of skilled workers and rising costs of raw materials keep businesses handcuffed. The specter of increasing tariffs and a broad trade war is adding to anxiety. The Beige Book is the central bank’s periodic review of the economy, it was notably more optimistic than it was just a few months ago. The Fed found that 11 of the 12 region that make up the country were growing at a “modest”  pace or even faster as economic activity continued to expand across all of the UA. Many companies, however, are struggling to find enough skilled workers and in some cases this is causing them to turn aside new business. Others say they have to pay more for critical raw materials as a problem caused by the recent tariffs. The increasingly shallow pool of available workers were cited across a wide range of occupations including truck drivers ,specialized construction and manufacturing workers, and IT professionals. The inability to find workers has const5rained the US growth as some companies reject5ed new orders because they could not find enough workers to fulfill the demand. The ultra tight labor market has given workers more bargaining power as many companies have boosted pay and benefits to attract or retain employees. Another problem companies are facing are the rising costs for raw materials and other supplies such as gas and oil, construction materials, metal and shipping. The fed called slight to moderate when referring to the pass through in price increases to US households, customers are strongly resisting price increases making them hard to pass along.

 Weekly Jobless Claims

Initial jobless claims, representing layoffs in the US, sank in mid July to the lowest level since the end of 1969. New claims dropped by 8,000 to 207,000 in the week ending In July 14ths. Economists had forecasted a higher reading of 224,000. The more stable monthly average of claims slipped by 2,750 to 220,500. The number of continuing claims or the number of people already collecting unemployment benefits rose by 8,000 to 1.75 million, also near a multi decade low. As the economy accelerated in the spring many companies across a wide array of industries sought to fill a record level of job openings. With unemployment at an 18 year low of 4% and good workers increasingly hard to find, firms are reluctant to let go of staff.