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  4. Retail Sales Jump Even As Industrial Production Disappoints – Market Update

It’s back-to-school season and the holidays will be here before we know it. It may sound funny to say since it’s only August, but it’s true. And with the upcoming American shopping season, President Trump has partially delayed an anticipated move in the trade war with China.

Before we get into the details though, let’s take a look at some of the available economic data released last week.

Headline News

Consumer Price Index (CPI)

Inflation came in slightly higher than expected on the consumer side in July with the average prices in core categories – after removing food and energy both – up 0.3%. This put overall inflation up 1.8% and up 2.2% year-over-year in core categories.

The cost of medical care was up 0.5% on the month and 3.3% on the year. Meanwhile, housing costs in July were up 0.3%, which makes back-to-back months. Housing prices are now up 3% on the year. These categories are driving inflation despite prices being lower in other areas.

Clothing prices have risen 0.4%, but they’re still down 0.5% from a year ago. Meanwhile, prices for used cars were up 0.9% in July and 1.5% year-to-year, but new vehicle prices are only up 0.3% since the same time a year ago. Tobacco prices were up 1% and have seen a 5.4% increase for the year. Summer is a big travel month and the cost of flights was 2.3% higher, but only up 1.3% on a yearly basis.

Energy prices seem to be bringing down overall inflation. Despite gas being up 2.5% and overall energy costs rising 1.3% in July, prices have dropped 2% compared to July of last year. Food prices were flat and have gone up 1.8% annually.

Analysts do note that higher inflation numbers weaken the case for a series of further cuts to short-term interest rates by the Federal Reserve. Again, it’s something to keep an eye on.

Quicken Loans Home Price Perception Index (HPPI)

The gap between homeowner estimates of what their home is worth and actual appraised value continued to fall in July, with homeowners overestimating value by just 0.63% compared to a difference of 0.71% in June.

Taking a look at the regional numbers, homeowners in the West overvalued their homes by just 0.52%. The South is next with a 0.63% difference. Homeowners in the Northeast and Midwest have estimates 0.67% and 0.69% higher than their actual home value, respectively.

At a local level, homeowners seem to have a better understanding of where their home values stand, as 20 of the 27 cities looked at had a difference of less than 1% between estimates and actual appraisal values. Homeowners in Charlotte had a hot housing market with appraisals 1.92% above where homeowners thought. Chicago homeowners, meanwhile, saw appraisals coming in 1.66% lower than their estimates. Finally, homeowners in Portland, Oregon, had appraised values coming in just 0.01% above estimates, indicating near total harmony between homeowners and appraisers.

Quicken Loans Home Value Index (HVI)

Home values were up 0.6% overall in July and have risen 4.78% year-to-year. Home values are now the highest they’ve been at any point in the last 12 years.

In the Northeast, values went up 1.34% in July and were up 5.1% compared to a year ago. In the Midwest, values rose 1.06% and 5.45% for the year. Meanwhile, in the West, values increased 0.22% on the month and 4.22% since last July. Bringing up the rear in terms of monthly gains was the South, up just 0.04%, but rising 3.51% year-over-year.

MBA Mortgage Applications

The markets have been spooked by some major announcements regarding tariffs over the last couple weeks, and it’s causing money to pour into the bond market, which has dropped the average interest rates listed here for a 30-year conforming mortgage to 3.93%, down seven basis points on the week.

Overall applications were up 21.7% last week on the strength of a 37% increase in those looking to refinance. Purchase applications were only up 2%, but there’s been a fairly strong 12% increase since this time last year.

Jobless Claims

Initial jobless claims jumped a bit, up 9,000 to come in at 220,000 overall last week. Meanwhile, the 4-week average was 213,750, up 1,000 from the prior week.

Meanwhile, on the continuing claims side, these were up 39,000 last week to come in at 1.726 million. The 4-week average of continuing claims was up 9,250, settling at a little more than 1.697 million claims.

Retail Sales

Amazon’s Prime Day and the resulting sales of competitors trying to keep up definitely helped goose retail sales numbers in July. Sales were up 0.7% overall and 1% when cars were taken out of the equation. When gas was further removed, sales were up 0.9%. Sales in a control group sensitive to fluctuations were up 1%.

There was a 2.8% increase in purchases from non-store retailers, which does include things like catalogs, but is mostly e-commerce. There was definitely a lot of online shopping happening. Meanwhile, department store sales were up 1.2%. Prime Day lines up nicely with what traditional retailers used to call Christmas in July, so there were also a fair amount of deals to get people into stores. Sales, electronics and appliance stores were up 0.9%, while clothing stores saw a 0.8% increase. Meanwhile, food and beverage store sales were up 0.6%.

In categories that had less to do with retail seasons in competition, gas prices were up, which meant a 1.8% uptick in sales at gas stations. There was also a small uptick in sales and building materials. More people were eating out, with restaurant sales up 1.1% in July.

It wasn’t a great month for everything, however. Car sales were down 0.6%. Also posting losses were sporting goods stores and retailers dedicated to health and personal care. But overall, it was a pretty good month. It’ll be interesting to see if gains can be sustained in August, when there’s not a major shopping event.

Industrial Production

As good as the retail sales numbers were in July, industrial production numbers were ugly, falling 0.2% on the month. Manufacturing production fell 0.4%. Meanwhile, capacity utilization in factories, which was already down 0.1% in June, fell an additional 0.3% in July to 77.5%.

The manufacturer of construction supplies was down 1% for the month, as were cars and trucks, which were down 0.2%. Businesses also invested less in equipment, with this category falling 0.4%, which may indicate businesses being a little concerned about the future. This is something the Federal Reserve will be keeping an eye on. Finally, mining fell 1.8% overall in July.

It doesn’t get much better from there. There was also a downturn in the number of hours worked. It’s worth noting that this is around the time auto industry workers go on vacation and lines are switched over to prepare for the new models, but this is still worse than expected. The lone bright spot was utility production, which was up 3.3%. This sector is up and down due to changes in weather.

Housing Market Index

This came in as expected with a one-point increase for August at 66. The number ties May as the best reading for home builder sentiment of the year.

Present sales were up two points to 73 in the best reading since October. Meanwhile, future sales over the next 6 months were down one point to come in at 70. Finally, traffic of prospective buyers in new homes was up two points to a break-even 50, indicating that the tide may be stemming and people may be ready to buy new homes.

Housing Starts

Housing starts were down a bit, but permits were up more than expected.

Overall, starts were down about 4.2% on the month to come in at 1.191 million on a seasonally adjusted annual basis. However, starts of single-family homes were up 1.9% of the same time a year ago, coming in at 876,000. The reason for the drop lies in multi-family homes, which was down to 315,000. That component has seen a 2.8% fall from a year ago.

Meanwhile, permits for single-family homes were up quite a bit at 838,000, which is still a decrease of 3.8% on the year. Multi-family permits were up 11.9% on the year after jumping to 498,000 in July, bringing total permits to 1.336 million.

In good news for home buyers, the completion rate is up, climbing 7.2% in July to 1.25 million. The trend in starts is also positive when looking at the 3-month average. Single-family starts are at 852,000 compared to the 3-month average in April, which was 829,000

Consumer Sentiment

Consumer sentiment dropped quite a bit in August preliminary readings. The overall number fell 6.3 points to 92.1. Numbers haven’t been this low since the government shutdown.

A key reason for this is that consumers are concerned about the potential impact of new tariffs on China. President Trump softened the effects of the tariffs for some key industries in order to accommodate holiday shopping, but the majority of responses to the survey were probably taken before the announcement. Of those surveyed, 33% said they were concerned about tariff issues. There was also some concern that the Federal Reserve cut rates last month in order to head off a recession.

Future expectations were down eight points to 82.3 as people worry their incomes won’t be going up as much as they may have previously hoped. However, the current conditions component was also down more than three points to 107.4.

In terms of inflation expectations, these were up 0.1% for both the 1-year and 5-year outlooks. These settled at 2.7% and 2.6%, respectively.

Mortgage Rates

Mortgage rates continue to remain near historical lows in Freddie Mac data. Stocks have recently taken a pounding and the bond market has been the beneficiary, including mortgage-backed securities. The more of these that are purchased, the lower the yield, which means lower mortgage rates.

What’s the bottom line? If you’re in the market for a home or looking to refinance your current humble abode, it’s a great time to lock your rate.

The average rate on a 30-year fixed mortgage was flat on the week at 3.6% with 0.5 points paid in fees. This is down from 4.53% a year ago.

Looking at shorter terms, the average rate on a 15-year fixed mortgage was up a couple of basis points to 3.07% with 0.5 points paid. This is down from 4.01% last year.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage with 0.3 points paid was down a single basis point to 3.35%. This has fallen from 3.87% a year ago.

Stock Market

Bond yields dipped a bit on Friday as traders pulled back from previous worries that there was an imminent recession on the way. As a brief refresher, when people get worried about the economy, money pours into bonds because they’re considered safer assets when people think things are good, or at least less worrisome than previously thought. Less worry was the sentiment on Friday and stocks pared back weekly losses.

It also helped that President Trump delayed some of his administration’s planned tariff increases for China until December 1, minimizing impact on the holiday shopping season. There were temporary reprieves for consumer goods and particularly consumer electronics. The timing is good for business. Apple, Google and Samsung are all expected to release new smart phones in the coming weeks.

The Dow Jones Industrial Average was down 1.53% on the week despite claiming 306.62 points Friday to close at 25,886.01. Meanwhile, the S&P 500 was up 41.08 points to end the week at 2,888.68, falling 1.03% week over week. Finally, the Nasdaq finished at 7,895.99, down 0.79% on the week, but up 129.38 points on the day.

The Week Ahead

Wednesday, August 21

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops that were sold during the month. Existing homes (also known as “home resales”) account for a larger share of the market than new homes and indicate housing market trends.

Thursday, August 22

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.

Friday, August 23

New Home Sales (10:00 a.m. ET) – This report measures the number of newly constructed homes with a committed sale during the month. This will be the report for January.

There’s not quite the torrent of economic data that came out last week headed our way this week, but we do get some data on home sales. This week is also the time of the Jackson Hole Economic Symposium, so people will be paying special attention to any forward-looking speeches given by members of the Fed.

If all of this sounds like we’re speaking exclusively in numbers, I can understand why this type of post might put you to sleep on a Monday afternoon. Not to worry. We’ve got plenty of home, money and lifestyle content to share if you subscribe to the Zing Blog below. Are you and your friends hoping for one last hurrah before summer is over? Let’s help you budget for that trip! Have a great week!

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