Mortgage Rates, Nickelback, & More

Week in Review: Aug. 14-18

Mortgage rates are now at their highest level since 2002, back when the top Billboard 100 songs were “How you Remind Me” (Nickelback) and “Foolish” (anyone who listens to Nickelback). Meanwhile, equity markets (and crypto) have been giving back some of their gains, and a new report indicates that those pesky consumers are poised to exhaust the excess savings accumulated during the pandemic. Yes, those same excess savings that have sustained growth and had many of us economists looking foolish as the economy continues to defy pessimistic expectations.

Monday

Gas Prices

Gas prices increased for the sixth straight week but are still about $0.19/gallon cheaper than one year ago.

Diesel Prices

Diesel prices increased for a fourth consecutive week, rising to their highest level since February. Prices have risen $0.57/gallon since mid-July, the tenth largest month-over-month increase since the EIA started tracking it back in 1994. Among other implications, higher diesel prices put a lot of upward pressure on food prices (transportation costs). But of course, the impact extends beyond food.

TSA Checkpoint Travel Numbers

If airports have felt crowded this summer, it’s because they are. The number of people passing through TSA security during the week ending August 16^th was about 2% above the same week in 2019. Weekly travel volumes have stayed above 2019 levels for exactly one month. Air travel is back, baby, which forms part of the ongoing consumer outlay story. I even saw someone last week smiling as they boarded Spirit Airlines (“Foolish”).

Tuesday

Retail Sales

The American consumer can’t be stopped. Retail sales increased faster than expected in July, up 0.7% for the month (0.4% was the consensus) and 3.2% over the past year. That’s in nominal terms—after adjusting for inflation, retail spending increased 0.6% in July, but is down about 0.1% over the past year.

At a glance, it looks like interest rate sensitive categories are starting to weaken. Spending at car dealerships fell 0.4% in July and spending at furniture stores fell 1.8%.

I wouldn’t read too much into this (at least not yet). Spending at car dealerships is still up 7.6% year over year, well above both overall retail spending and inflation. Sales at furniture stores are down 6.3% year over year, but that’s probably due to the lack of people who are moving given the lock-in effect of low mortgage rates and the fact that, after this summer, no one will be moving to Phoenix, AZ ever again…

The upshot: consumers looked healthy as of July, but there are two things to watch over the next couple months. Gas prices have risen pretty sharply and student loan repayments restart in October.

NAHB Wells Fargo Housing Market Index (HMI)

The HMI (a survey of homebuilders meant to “take the pulse of the single family housing market”) fell in August. That’s the first monthly decline since December. All three components of the index—present sales, sales expectations over the next six months, and traffic of prospective buyers—dipped in August.

Chalk this up to high mortgage rates and expensive materials prices, the latter of which are still up nearly 40% since the start of the pandemic despite moderating in recent months.

Wednesday

New Residential Construction