Retail Sales Have Big Rebound – Market Update

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I hope everyone had a good Father’s Day and got to spend some time with their families. If the weather was nice in your part of the country, maybe a little cookout took place.

The economic data that came out last week was kind of a mixed bag, but there are signs that some areas might be bouncing back, albeit cautiously. If I had to put this in terms of a weather forecast, I would say it was partly sunny.

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Economic analysis for this report was provided by Econoday.1 Let’s get into it without any further delay.

Retail Sales

Retail sales were up an overwhelming 17.7% in May after having fallen 14.7% in revised numbers for April. When cars were taken out, sales were up 12.4% in comparison to the previous month. This number held when gas was further removed. Finally, sales in a control group that isn’t as sensitive to seasonal fluctuations were up 10.6%.

Before moving into individual retail sectors, one more thing worth noting about the overall numbers is that all of the estimates for April were revised upward. Don’t get it wrong. The bottom still fell out of the retail sales data in April, but the trench wasn’t quite as deep as previously thought.

If there was one corollary to this report, it’s that there were fairly large amounts of government stimulus, either directly or through increased subsidies of normal state unemployment insurance.

Turning to individual sectors, automobile sales were up 44.1% in May, while restaurants saw a 29.1% increase in sales. Sales at clothing stores were up 188%, and there was a 15.5% uptick in electronics and appliance sales. More people were out on the roads, and gas sales were up 12.8%.

Construction restarted in many areas of the country, and it was up 10.9% to go along with a 6% increase in general merchandise sales and then a 36.9% uptick in department store sales. There was also a 9% increase in nonstore retail sales, which is mostly e-commerce.

Industrial Production

Overall production was up 1.4% in the month of May, but this was well below estimates for a 2.9% increase. However, it’s worth noting that manufacturing outperformed expectations, rising at a level of 3.8%. Overall factory capacity was up 0.8% to 64.8%, although April numbers in this area where revised downward.

Outside of manufacturing, mining was down 6.8%, and production and utilities fell 2.3%. On the manufacturing side, vehicle production was up 120.8%, but this was essentially a restart.

Despite cautious steps forward, production was still 15.4% below February before the current situation and had fallen 15.3% compared to the same time a year ago.

Housing Market Index

Builder confidence in the housing market rose markedly in June, coming in at 58, up 21 points. Consensus expectations had been for the index to come in at 44, so it’s a major improvement despite being quite a bit below recent highs.

Traffic of prospective buyers walking through homes was up 22 points at 43. Meanwhile, sales of single-family homes came in at 63. Finally, sales over the next 6 months were up 22 points to settle at 68.

MBA Mortgage Applications

Mortgage applications were up 8% overall with a 10% upturn in refinance applications as the average rate for a 30-year conventional fixed-rate mortgage came in at 3.3%. Purchase applications were up 4% on the week and have now risen 21% for the year.

Housing Starts

Housing starts came in at a rate of 974,000 on a seasonally-adjusted annual basis, up 4.3% in May. While this is 23.2% lower than where the market was at this time a year ago, it could be a sign that things have hit the bottom and are starting to go up. Given supply constraints with existing homes being pulled off the market as people wait until after this whole thing shakes out to sell, any supply in the market is a good thing.

Permits were up 14.4% at 1.22 million. COVID-19 has ended up having less of an impact on these because you don’t actually have to have a shovel in the ground. On the single-family side in particular, permits were up 11.9% at 745,000.

The downside of this report is completions, which fell 7.3% to 1.115 million on a seasonally-adjusted annual basis. Completions have fallen 9.8% as compared to last year, but the dip hasn’t been quite as bad as a house on the starts end. However, most of the demand in the housing sector has been about single-family homes and these completions were down 9.8%. They are pacing at 791,000.
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Jobless Claims

Initial jobless claims fell 58,000 last week to 1.508 million. Meanwhile, the 4-week average was down 234,500 to come in at about 1.774 million. Jobless claims aren’t falling as quickly as they had been in previous weeks.

The overall unemployment rate was flat at 14.1% as the drop in continuing claims of 62,000 wasn’t enough to push the percentages down at all. The 4-week moving average was down 1.092 million to come in at about 20.815 million – still very elevated.

Mortgage Rates

Mortgage rates again fell to historical lows last week, according to Freddie Mac. If you’re in the market for a mortgage and ready to move forward, get started by speaking with one of our Home Loan Experts.

The average rate on a 30-year fixed mortgage with 0.8 points paid in fees was 3.13%, down 8 basis points on the week and having fallen from 3.4% at the same time a year ago.

Meanwhile, the average rate on a 15-year fixed mortgage with 0.8 points paid was down 4 basis points to 2.58%. This has fallen from 3.25% last year.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage was down a single base point to 3.09% with 0.4 points paid. The rate at the same time last year was 3.48%.

Stock Market

It was an up-and-down day for stocks on Friday. Part of the reason for this was purely technical. About once a quarter, the S&P 500 gets rebalanced. This works as a reset for funds that are tied to the performance of the S&P 500. It typically happens earlier in the year as well but was postponed due to market volatility.

There were also a couple of negative headlines. Apple closed stores in Florida, Arizona and North and South Carolina over COVID-19 concerns. Meanwhile, a group of big players in the cruise industry announced the suspension of departures from U.S. ports over the same issues.

The Dow Jones Industrial Average was down 208.64 points on the day, finishing at 25,871.46, still up 1.04% on the week. Meanwhile, on the S&P 500, stocks were up 1.86% on the week despite falling 17.6 points on the day to close at 3,097.74. Finally, the Nasdaq finished at 9,946.12, rising 3.07 points for the day and 3.73% on the week.

The Week Ahead

Monday, June 22

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.

Tuesday, June 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.

Wednesday, June 24

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.

FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency House Price Index covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.

Thursday, June 25

Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory goods.

Gross Domestic Product (GDP) (8:30 a.m. ET) – This release measures the monetary value of all final goods and services produced within the U.S. This report is released on a monthly basis with estimates on the growth in the previous quarter.

International Trade in Goods (8:30 a.m. ET) – The Bureau of Economic Analysis has begun breaking out the goods from the remaining international trade numbers to get an idea of import and export estimates for GDP calculations.

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, June 26

Personal Income and Outlays (8:30 a.m. ET) – This is a measurement of how much consumers are taking in as well as their corresponding spending. This also gives insight into how much is being saved.

Consumer Sentiment (10:00 a.m. ET) – The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending.

There’s quite a lot of data coming up this week as various government agencies try to cram everything in before the Fourth of July. We’ll have it all covered for you in next week’s Market Update!

There’s such a thing as the dog days of summer, and especially this year, I feel like it’s been easy to settle into the monotony at times. If market data and mortgage rates aren’t really your thing right now, we certainly understand it. We have plenty of home, money and lifestyle content to share with you if you subscribe to the mailing list below.

The summer heat has really started to kick in. If you’re looking to get people in the pool and cool off as part of your Independence Day celebrations, here’s an article on throwing an epic pool party. Have a great week, enjoy the holiday and stay safe!

1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.

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