The weather finally cooled this week, just in time for fall break at many schools and universities across the country. The autumn breeze and school recess were accompanied by a light economic calendar. Retail sales came in stronger than expected in September, industrial production was weaker than expected and residential construction softened. The fall data mix is a continuation of the underlying trends in economic growth—consumers are strong, while interest-rate-sensitive sectors are weak.
Retail sales rose 0.4% in September with broad-based strength. Over the past year, sales at e-commerce establishments (7.1%), health & personal care stores (4.6%), restaurants (3.7%) and general merchandisers (2.6%) were up solidly (chart). The annual growth rates are made more impressive considering that core goods prices have been in deflationary territory throughout 2024, suggesting that sales volumes have picked up. Our measure of real retail sales, which adjusts for inflation, was up 3.2% year-over-year in September, compared to the 1.7% nominal annual gain. The strong showing, combined with recent upward revisions to household income, poses some upside risk to our already-strong 3.2% (annualized) forecast for real personal consumption expenditures in Q3.
Industrial production slipped 0.3% in September. The decline was partially driven by the Boeing worker strike, Hurricane Helene and preparations for Hurricane Milton. The Federal Reserve estimated that these disruptions together subtracted 0.6 percent from overall production in September. Capacity utilization slipped 0.3 percentage points to 77.5%, or the lowest since January. The sluggish outturn is illustrative of the fragile state of the manufacturing sector today where one-off factors can derail total output rather than just slow it. On an annual basis, industrial production has contracted for three consecutive months.
Residential construction also weakened in September. Housing starts slipped 0.5% to a 1,354K-unit annual pace. The modest decline was roughly in line with expectations. That said, building permits pulled back a sharper-than-expected 2.9% due to a plummet in permit applications for multifamily properties over the month. Multifamily construction data are volatile month-to-month, but the trend decline in permits suggests that apartment development is likely to remain weak for some time. Demand for single-family properties is comparatively stronger. On a year-to-date basis, single-family home building permits were up 9.8% in September.
Looking through some of the recent idiosyncratic shocks, the long lags of restrictive real interest rates are still feeding through to the business sector. The commencement of monetary policy easing has spurred lower Treasury yields and mortgage rates, but borrowing costs remain plenty elevated relative to their pre-pandemic norms. As the Federal Reserve continues to reduce its target range for the fed funds rate in the coming months, we look for growth in interest-rate sensitive sectors to gain firmer footing around mid-2025.
This Week's State Of The Economy - What Is Ahead? - 16 July 2021
Wells Fargo Economics & Financial Report / Jul 30, 2021
Visiting from Texas, it felt more like fall, which like the Texas cold-snap last February just goes to show that it’s a case of what you’re used to.
This Week's State Of The Economy - What Is Ahead? - 08 October 2021
Wells Fargo Economics & Financial Report / Oct 15, 2021
September\'s disappointing employment report clearly takes center stage over this week\'s other economic reports. Nonfarm employment rose by just 194,000 jobs, as employers continue to have trouble finding the workers they need.
This Week's State Of The Economy - What Is Ahead? - 01 May 2020
Wells Fargo Economics & Financial Report / May 04, 2020
U.S. GDP declined at an annualized rate of 4.8% in the first quarter, only a hint of what is to come in the second quarter.
This Week's State Of The Economy - What Is Ahead? - 04 November 2022
Wells Fargo Economics & Financial Report / Nov 07, 2022
Employers continued to add jobs at a steady clip in October, demonstrating the labor market remains tight and the FOMC will continue to tighten policy.
September 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Sep 19, 2020
A March survey by the Federal Reserve Bank of Dallas found most exploration firms need West Texas Inter-mediate (WTI) at $49 per barrel or higher to profitably drill a well.
This Week's State Of The Economy - What Is Ahead? - 14 June 2024
Wells Fargo Economics & Financial Report / Jun 20, 2024
On Wednesday, the May CPI data showed that consumer prices were unchanged in the month, the first flat reading for the CPI since July 2022.
This Week's State Of The Economy - What Is Ahead? - 18 December 2020
Wells Fargo Economics & Financial Report / Dec 21, 2020
This week marked the first U.S. COVID vaccinations and the imminent rollout of a second vaccine.
This Week's State Of The Economy - What Is Ahead? - 13 October 2023
Wells Fargo Economics & Financial Report / Oct 13, 2023
The Consumer Price Index (CPI) rose 0.4% in September, a monthly change that was a bit softer than the 0.6% increase registered in August. The core CPI rose 0.3% during the month, a pace unchanged from the month prior.
This Week's State Of The Economy - What Is Ahead? - 26August 2022
Wells Fargo Economics & Financial Report / Aug 29, 2022
I can understand how the opportunity to participate in lots of scintillating economic policy discussions could make fishing look exciting in comparison.
This Week's State Of The Economy - What Is Ahead? - 24 July 2020
Wells Fargo Economics & Financial Report / Jul 25, 2020
Initial jobless claims rose to just over 1.4 million for the week ending July 18. Continuing claims fell to about 16.2 million. Initial claims edging higher suggests that the resurgence of COVID-19 may be taking a toll on the labor market recovery.
