Retail Sales, Consumer Finances, & More

Week in Review: Oct. 16-20

On October 17, 2022, Bloomberg published a story with the headline, “Forecast for US Recession Within Year Hits 100%.” Well, it’s one year later, and not only have we avoided recession, data released this week make it clear the economy will continue to grow through the end of the year (barring a government shutdown).

This week brought us lots of new data, much of which confirms that surging mortgage rates are intolerable for the homebuilding, buying, and selling industries.

Monday

Gas Prices

Gas prices fell for a second consecutive week and, at $3.71/gallon, are at the lowest level since mid-July. Despite elevated geopolitical uncertainty, oil prices remain lower than they were one month ago.

Diesel Prices

Diesel prices fell for a second straight week and are at the lowest level since the end of August.

TSA Checkpoint Travel Numbers

The number of people passing through TSA security remained elevated during the week ending October 17. The consumer has been spending on both services (like travel) and goods. Speaking of which . . .

Tuesday

Retail Sales

American spending on retail and restaurants increased for the sixth straight month in September. Spending is up 3.8% over the past year—just slightly faster than inflation—but 4.4% if we exclude spending at gas stations (gas is about $0.28/gallon cheaper than one year ago).

Over the past year, spending has increased at its fastest rate in the following categories: restaurants and bars, eCommerce, cars and car parts, and health and personal care stores. The largest declines have occurred in: furniture stores, building material stores, electronics and appliance stores, and department stores.

Industrial Production

Industrial production, one of the six indicators that the NBER uses to diagnose a recession, increased for a third consecutive month in September, rising 0.3%. Production of consumer goods increased for the month while production of business equipment declined. This tracks with our understanding of the broader economy: higher rates are weighing on businesses’ access to credit while consumers are largely unfazed.

NAHB/ Wells Fargo Housing Market Index

This measure of homebuilder sentiment fell in October and is now at its lowest level since January. Homebuilder confidence increased pretty sharply during the first half of the year but has now fallen during each of the past three months. I just spoke to a builder out of Sacramento (I just gave a speech there), and they indicated that the situation is getting very bad. Mortgage rates have pushed too many people out of the market, and anyone wealthy enough to deal with them has likely already transacted. I asked him if he bought into my forecast of recession within the next 12 months. He said, “Absolutely.”

Redfin Homebuyer Affordability Data

According to Redfin, “A homebuyer must earn $114,627 to afford the median-priced U.S. home, up 15% ($15,285) from a year ago and up more than 50% since the start of the pandemic. That’s the highest annual income necessary to afford a home on record.”

Wednesday

Survey of Consumer Finances 2022