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By HaleStewart May 20, 2018 11:30 am
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US Economic Week in Review

              This week, the markets received several key pieces of leading and coincidental data.  Let’s start with 1-unit building permits, which has a bullish economic backdrop.  The labor market is strong.  While interest rates are increasing, the average 30-year mortgage is slightly below 4.6%; while high by recent standards, it’s low historically.  New homes sales are still climbing despite rising median and average prices.    

               After declining 4% in March due to inclement weather, 1-unit building permits rebounded modestly in April, advancing 1%.  The South, (55% of the market), rose 5%; the Midwest (14% of the market) increased 2.5%.  There was a sharp drop in the West (-6.7%; 24% of the market); the NE was off 4%.  At the national level, the trend is still up:

During the housing bubble, new home inventory spiked to unprecedented levels; after the Great Recession, the months of inventory-on-hand has returned to far more sustainable levels:

Interest rates and prices pose the primary risks to the market right now.

               Like the housing market, retail sales have a bullish economic backdrop.  Unemployment is low and consumer confidence is high.  While wage growth is modest when compared to other expansions, it is increasing.  Sales increased .3% M/M while climbing 4.7% Y/Y (4.8% ex-auto).  Both charts are strong:

The left chart shows the absolute value of sales, which is in a strong 5-year trend.  The Y/Y pace (on the right) continues to expand between 4%-5.5% -- a very solid growth rate.  Only three sub-sectors declined: department stores (-1.6%), sports/hobby establishments (-1.1%), and home/personal care stores (-.5%).  There is little reason to think retail sales will decline soon; unemployment is low, the broader labor market is very strong, wages are rising and consumer confidence is strong.

               Finally, the Federal Reserve released the latest industrial production data on Wednesday.  Recent ISM data indicate this sector of the economy should be doing well – which was confirmed by this week’s IP report:

Industrial production rose 0.7 percent in April for its third consecutive monthly increase. The rates of change for industrial production for previous months were revised downward, on net; for the first quarter, output is now reported to have advanced 2.3 percent at an annual rate. After being unchanged in March, manufacturing output rose 0.5 percent in April. The indexes for mining and utilities moved up 1.1 percent and 1.9 percent, respectively. At 107.3 percent of its 2012 average, total industrial production in April was 3.5 percent higher than it was a year earlier. Capacity utilization for the industrial sector climbed 0.4 percentage point in April to 78.0 percent, a rate that is 1.8 percentage points below its long-run (1972–2017) average.

This table from the report shows the breadth of bullishness:

The Fed breaks the data down into major market groups and major industry groups.  Regardless of the classification system used, the results are strong.  This is especially important as IP was weak for several years due to the oil market’s contraction – which has now turning to an expansion.    





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