Control Group Retail Sales Show Surprising Strength as Single-Family Starts Continue to Slide

Key Takeaways:

• Retail sales and food services were flat in June but revised upward in May, according to the Census Bureau. While the headline figure suffered from a price-related 3.0 percent decline in gas station sales and a 2.0 percent decline in sales of motor vehicles and parts, control group retail sales (which exclude food service, auto, building supplies, and gas station sales), increased 0.9 percent. This was led by a 1.9 percent jump in nonstore retailers, representing primarily online sales. Sales at restaurants and bars rose 0.3 percent, their third consecutive monthly increase.
• Industrial production, a gauge of output in the manufacturing, utility, and mining sectors, increased 0.7 percent in June, according to the Federal Reserve Board. Manufacturing activity rose 0.4 percent due in part to a 1.6 percent increase in motor vehicle manufacturing. Mining output rose 0.3 percent, while utilities output jumped 2.8 percent due to unseasonably warm weather.
• Housing starts increased 3.0 percent to a seasonally adjusted annualized rate (SAAR) of 1.35 million in June, according to the Census Bureau. Single-family starts were down 2.2 percent to a SAAR of 980,000, the lowest level since October 2023, though May’s figure was revised upward. The highly volatile multifamily starts series increased 19.6 percent to a SAAR of 373,000. Single-family permits declined 2.3 percent to a SAAR of 934,000, their fifth consecutive monthly decline, while multifamily permits increased 15.6 percent to a SAAR of 512,000.
• The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index declined 1 point to 42 in July. The index for single-family sales in the present declined 1 point to 47, while the index for sales in the next six months was up 1 point to 48. The index for traffic of prospective buyers declined 1 point to 27.

Forecast Impact:

Control group retail sales, which feed into the Bureau of Economic Analysis’s estimates for personal consumption, were a bit above expectations in June. This report presents some upside risk to our near-term consumption forecast, but we continue to view the current pace of consumer spending to be unsustainably high relative to income growth and, therefore, expect slower consumption growth moving forward. The industrial production report was generally positive in June, showing that manufacturing output is now 2.5 percent above its January level. Still, manufacturing sector growth in general remains sluggish, in line with our forecast for a slowing economy.

While single-family starts were in line with our quarterly forecast, they have now declined in five of the six months this year. We have noted that homebuilding is concentrated in the Sunbelt, where listings of existing homes have also risen substantially. This has slowed demand for new homes, and we expect softer construction through the end of the year. The further decline in permits, coupled with continued weak readings in homebuilder confidence, presents a bit more downside risk to our single-family starts forecast.

Nathaniel Drake
Economic and Strategic Research Group
July 19, 2024

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