Monday Economic Report: Opening Their Pocketbooks: Retail Spending Jumped 3.8% in January

NAM Economic Toplines: 

Retail sales jumped 3.8% in January, rebounding from the 2.5% decline seen in December. This result suggests that Americans once again opened their pocketbooks more willingly at the start of the new year after pulling back at year’s end. Retail spending soared 13.0% over the past 12 months, consistent with the opening of the economy and with consumers who have been flush with cash. The solid growth in retail sales stands in contrast to falling consumer sentiment data, with Americans increasingly more worried about inflation. Manufacturers also continue to cite soaring raw material costs and supply chain disruptions as their top challenges. Producer prices for final demand goods and services rose 1.0% in January, the strongest monthly increase since May. At the same time, producer prices for final demand goods increased 1.3% in January, a four-month high. Over the past 12 months, producer prices for final demand goods and services jumped 9.8% (seasonally adjusted), pulling back from 10.0% in December, which was the largest increase on record for a series dating to November 2009. At the same time, core producer prices increased 6.9% year-over-year in January, edging down from a record 7.0% in December. Manufacturing surveys from the New York and Philadelphia Federal Reserve Banks moved in different directions in February. The Empire State Manufacturing Survey rebounded somewhat from a January contraction, whereas the Philly Fed’s report cited slower conditions for the month. Input and output prices remained very elevated, particularly in the New York Fed district. Respondents remained upbeat in their outlook, however. Manufacturing production rose 0.2% in January, rebounding slightly after edging down 0.1% in December. Speaking to the softness of the latest data, manufacturers have been challenged by supply chain bottlenecks, workforce shortages, rising production costs and, more recently, the spread of the omicron variant. Nonetheless, manufacturing capacity utilization inched up from 77.2% in December to 77.3% in January, matching the rate seen in November, which was the strongest reading since December 2018. Overall, manufacturing production has risen 2.5% year-over-year, with 2.0% growth relative to February 2020’s pre-pandemic pace. Meanwhile, total industrial production increased 1.4% in January, rising to the highest level since December 2018, buoyed by strong gains in the mining and utilities sectors for the month. New residential construction activity fell 4.1% to 1,638,000 units in January, a three-month low. Housing construction has been challenged by rising building costs, affordability issues and difficulties in finding workers. Housing starts have risen just 0.8% year-over-year. With that said, builders remained optimistic about the coming months. They expect solid sales growth over the next six months despite ongoing concerns, even with a slight easing in the latest NAHB Housing Market Index. Along those lines, housing permits increased 0.7% to an annualized 1,899,000 units in January, the fastest pace since May 2006. Single-family permits rose 6.8% to 1,205,000 units, a 12-month high. On a year-over-year basis, multifamily permits have soared 12.8%, but single-family permits have decreased 5.0% since January 2021. Existing home sales jumped 6.7% to 6.50 units at the annual rate in January, a 12-month high, according to the National Association of Realtors. Lawrence Yun, the NAR chief economist, noted, “Buyers were likely anticipating further rate increases and locking-in at the low rates, and investors added to overall demand with all-cash offers.” At the same time, existing homes on the market in January translated to just 1.6 months of unsold inventory, which was a record low. The median sales price for existing homes jumped by a very robust 15.4% year-over-year. READ FULL REPORT