In The Know – June 21, 2024

This week, retail sales numbers that came out on Tuesday edged up .1% month over month for May of 2024, following a downwardly revised .2% fall in April and below the forecast of .2, this is another sign that consumer sentiment is cooling. If we dig down a little bit deeper into that number, core retail sales in May were a bit softer than what was expected. They rose 0.4% month over month, one 10th less than what was expected, and off of a lower base because April was revised lower as well. Year over year, retail sales are up 3.1%, which compares with the five-year average leading into Covid of 3.6%. So lower than pre Covid.

Inflation is rising by a similar amount. So that can sort of explain why retail spending is up. If prices are higher, spending is up. So there is not any real consumer spending growth. This is not a good thing for a consumer-driven economy. About 70% of our economy is driven by consumer spending. So when we see retail spending start to slow down, that is a bit of a concern for the overall picture

We also got building permits out just yesterday. May housing starts came in almost 100,000 below expectations at 1.277 million, down from 1.352 million in April. Housing starts have consistently come in above the 1 million mark since last November. But for May, single-family housing starts fell under a million at 982,000. Multifamily construction starts continues to shrink as well, it totaled just 295,000 in May and the second month in the past three months below 300,000. So this trend is not conducive to rents, which has been the stickiest part of inflation thus far. Less places to live means that landlords can charge more, keeping rents high.

The population is increasing in the United States, thanks mostly to our open border policy. So if we let anyone and everyone in, where’s everyone going to live? We have a housing shortage in this country, and that lends to higher prices.

Housing permits, which is also an indication of what is being built, or what will be built in short order, for both multifamily units and single-family homes, fell month over month, too. So here’s what the National Association of Home Builders said yesterday about single-family home builders. They said, ”persistently high mortgage rates are keeping many prospective buyers on the sidelines. Home builders are also dealing with higher rates for construction and development loans, chronic labor shortage and a dearth of buildable lots.”

Well, speaking of a dearth of buildable lots, if you’re like me and don’t have a very prolific vocabulary, I had to look up dearth. So it’s a shortage, scarcity of buildable lots. So that was interesting to me since we just added a new company in the consumer discretionary, CD20, if you want to check that out, that speaks to what we just saw the National Association of Home Builders talk about.

Weekly unemployment numbers came out again just as they do every week, and they are showing increasing signs of a crumbling labor market. Last week’s 243,000 initial jobless claims was revised up by 1000. So that means there were more jobless claims than what was originally thought. And it is proving to be more of a trend rather than a blip in the data. So last week’s number was the highest number that we saw since last August. And the trend continues to play out this week: 238,000 for the week ending June 15. That was 3000 more than what was predicted.

The four-week moving average rose 233,000 from 227,000 and that’s the highest since last September. Continuing claims rose 15,000 week over week to 1.828 million, just 1000 from the most that we saw in November of 2021.So there is a growing divide between what the monthly establishment survey tells us, the government numbers, that tells us about the employment, the survey numbers, what they’re asking people, versus reality. That’s the number of claims that were actually being reported.

Well, markets were closed on Wednesday this week in observance of Juneteenth. So we did have a bit of a shortened week. On Thursday, the indices closed in mixed territory. The S&P briefly topped the 5500 mark for the first time ever before shrinking back into negative territory for its close on Thursday. But by the closing bell on Thursday, all three stock indices were on track to close in positive territory for the week. So the Dow is up one and a half percent for the last week. The S&P is up 0.78 and the Nasdaq’s barely hanging into positive territory at a .09% increase.

So what’s coming up next week? Well, we have the final look at the first quarter GDP. Now, GDP measures the growth of the economy. So we get a first look, a second look, and a final look as the numbers come in and are really analyzed. The first look at GDP was a 1.6% growth rate. The second look was revised down to 1.3. And we’re going to get that third and final look at GDP for the first quarter of 2024, which we’re about to close out the second quarter. So this is a little bit of a dated number. So it’s expected to come in at 1.3% as well. This is noticeably slower than the 3.4% growth rate that we were experiencing the fourth quarter of 2023. We also get an inflation read next week. PCE number comes out. That’s the Fed’s preferred gauge of inflation. It is expected to be down 0.1%, supporting the narrative that we are seeing disinflation, not prices go down, but we’re seeing the rate of inflation slow. Personal spending and personal income are also going to be reported next week, and they are both expected to be slightly up as well.

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