KEY DATA: Sales: +0.6%; Over-Year: +2.6%; Ex-Vehicles: +0.7%/ NAHB: +5 points
IN A NUTSHELL: “Consumers are still spending, but not surprisingly, the pace is slipping a little.”
WHAT IT MEANS: With the enhanced unemployment insurance payments disappearing in early August, economists have been looking for signs that consumption is fading. The first report that could signal that is the August retail sales numbers and while they were a little softer than we had been seeing, they were still pretty good. Overall demand was strong. Yes, the increase was less than what it was in the late spring and early summer, but those were outsized gains that corrected for the early spring collapse. There were solid gains in sales of clothing, health care, furniture, electronics, and of course, building materials. With so many people working from home, fixing up the place has become a major priority. But the biggest increase was in restaurants. Inside dining is joining outside service and that is helping this sector improve. Still, August restaurant sales were down over fifteen percent compared to a year earlier. In comparison, total retail sales were up, though somewhat modestly. There was a warning sign in this report. The measure that most closely mirrors consumption, core retail sales, which exclude autos, gasoline, building materials and food services, declined slightly. We could be starting to see some pullback due to the loss of income. It is too early to conclude that, but it is worth watching.
As for the housing market, the NAHB/Wells Fargo National Housing Market Index popped again in early September. The homebuilders’ measure is out of control. It is now five points above the previous high and eleven points above the peak that was posted during the housing bubble. It is hard to understand what the housing market indicators truly indicate. By that I mean, are we in a bubble, a big bubble, a massive bubble, or just a short-term surge that is overwhelming the measures? With households looking to escape high-density locations, it is not surprising that homebuilders are seeing greater demand, but this is crazy. Let’s just say that housing should add greatly to growth in the third quarter and leave it at that.
IMPLICATIONS: Today’s data show an economy moving forward strongly. The consumer is consuming and builders are building. But we also cannot totally dismiss the potential impact of the lack of additional stimulus. Those buying homes are not likely those who are still on unemployment insurance. The unemployed are the ones whose spending is most sensitive to income changes. Many states are gearing up to provide the additional $300 per month that has been temporarily funded by executive order, but that is not universal and is not likely to hit for a while. The fall economy is pretty much set, but the winter and next spring are up for grabs right now. Meanwhile, the Fed members are finishing their meeting, which should provide little news. As for investors, they just keep on keepin’ on.