8/18: MetroIntelligence Economic Update by P. DUFFY

MetroIntelligence Economic Update by P. DUFFY


August builder confidence rises again to 78, matching record last set in 1998

In a sign that housing continues to lead the economy forward, builder confidence in the market for newly-built single-family homes increased six points to 78 in August.  The Housing Market Index (HMI) now stands at its highest reading in the 35-year history of the series, matching the record that was set in December 1998.  The sub-index gauging current sales conditions rose six points to 84, the component measuring sales expectations in the next six months increased three points to 78 and the measure charting traffic of prospective buyers posted an eight-point gain to reach its highest level ever at 65.


Home affordability slips to 59.6% in 2Q 2020, lowest rate since 4Q 2018

Despite low interest rates, a supply shortage coupled with rising home prices contributed to a decline in housing affordability in the second quarter of 2020. In all, 59.6 percent of new and existing homes sold between the beginning of April and end of June were affordable to families earning an adjusted U.S. median income of $72,900. This is down from the 61.3 percent of homes sold in the first quarter of 2020 that were affordable to median-income earners and the lowest reading since the fourth quarter of 2018.


July retail sales rebounded 1.2 percent from June and 2.7 percent year-on-year

Advance estimates of U.S. retail and food services sales for July 2020 were $536.0 billion, an increase of 1.2 percent from the previous month, and 2.7 percent above July 2019. Total sales for the May 2020 through July 2020 period were down 0.2 percent from the same period a year ago.


July industrial production rose 3.0 percent, but down 8.2 percent year-on-year

Total industrial production rose 3.0 percent in July after increasing 5.7 percent in June; even so, the index in July was 8.4 percent below its pre-pandemic February level and down 8.2 percent year-on-year. Manufacturing output continued to improve in July, rising 3.4 percent. Most major industries posted increases, though they were much smaller in magnitude than the advances recorded in June. The largest gain in July—28.3 percent—was registered by motor vehicles and parts; factory production elsewhere advanced 1.6 percent. Capacity utilization for the industrial sector increased 2.1 percentage points in July to 70.6 percent, a rate that is 9.2 percentage points below its long-run (1972–2019) average but 6.4 percentage points above its low in April.


Consumer sentiment edges up to 72.8 in early August survey

Consumer sentiment remained largely unchanged in early August from the July reading (+0.3 points) or the April low (+1.0) to 72.8. Two significant changes since April have been that consumers have become more pessimistic about the five-year economic outlook (-18 points) and more optimistic about buying conditions (+21). Lower interest rates by the Fed prompted more favorable buying, especially for homes, and the DC policy gridlock was responsible for the weaker outlook. Consumers anticipate declines in the national unemployment rate to significantly slow and expect a rising rate of inflation during the year ahead.


FannieMae upgrades economic forecasts for 3Q2020 and for full year

As of the time of this writing, new COVID-19 (coronavirus) cases are declining within the United States. Combining the elevated savings rate of 19 percent in June and extremely accommodative fiscal and monetary policy to date, we expect growth to accelerate toward year-end. Recent high frequency data on mobility and credit card expenditures suggest that activity may have accelerated modestly in late July. We now expect Q3 gross domestic product (GDP) to grow at an annualized pace of 27.2 percent and have upgraded our full-year 2020 forecast to a 3.1 percent decline, up from our prior forecast of a 4.2 percent contraction.