INDICATOR: October Retail Sales, Industrial Production, Import and Export Prices and November Home Builders Index
KEY DATA: Sales: +0.3%; Ex-Vehicles: +0.2%/ IP: +1.1%; Manufacturing: +1%/ Import Prices: -0.1%; NonFuel: +0.1%; Export Prices: +0.2%; Farm: +3.4%/ NAHB: +5 points
IN A NUTSHELL: “Households continue to spend their money, but not exuberantly.”
WHAT IT MEANS: The economy crashed. The economy soared. So, where do we go from here? That has been my refrain for months now and we are starting to get some data on the fourth quarter. Consumer spending was okay in October, but nothing special. Actually, let me rephrase that: It was somewhat disappointing. That is because Amazon had its Amazon Days sales in October rather than July and how the government could seasonally adjust for that is anyone’s guess. Look at it this way: Total retail sales were up by $1.40 billion. Internet sales rose by $2.66 billion. Yes, the switch to October helped by Amazon and consumers, but it artificially raised the October number. That raises questions about whether households did their holiday shopping in October. As for the rest of the retailers, demand for building supplies and electronics and appliances rose strongly and vehicle purchases were up moderately. Otherwise, sales were weak. The rebound in restaurant demand, not surprisingly, seems to have ended and with restrictions coming in, this sector could be facing another round of losses.
The nation’s industrial sector soared in October, continuing its dramatic upward climb from the depths of the virus-induced closings. August and September were revised upward, so the increase is even more impressive. In looking at the details, every market group posted a rise. As for manufacturing, the outliers were fabricated metals and textiles, which cut back output fairly sharply. There was also a modest decline in vehicle assemblies. Otherwise, the sector posted really good increases.
If you are worried about inflation, don’t be. Import prices fell in October, led by a decline in energy costs. Excluding energy, prices rose modestly and much of that came from a jump in lumber costs. The surge in home building has a downside and that is the cost of building a home is starting to jump. On the export side, farmers are starting to see a major turnaround in the prices they see for their sales to the rest of the world. For the second consecutive month, farm export prices soared.
Housing is on fire and so it was not surprising to see the National Association of Home Builders’ index rise. But it didn’t just increase, it soared. It is simply impossible to understand the level of the index. It hit 90 in November. During the housing bubble, the highest level was 72, which didn’t even match the 78 at the peak of the dot.com bubble. Meanwhile, housing starts, as of September, were only about 62% of the bubble peak. There is likely to be additional solid increases in home construction over the next few months, but the surge may be nearing its end.
IMPLICATIONS: The economy continues to do well and now it looks like a vaccine will be available by year’s end that will not require the world to move back into an Ice Age for it to be distributed. But the failure of the Trump administration to work with the Biden transition team is disconcerting, to say the least. Biden’s group will be in charge of the distribution process and if it is to go smoothly, or as smoothly as possible, they have to have a major say in the design. Otherwise, there could be some major bumps in the distribution of the vaccine. The sooner large the population gets inoculated, the sooner we get back to the next new normal. The second issue is a stimulus bill, or the lack thereof. The October retail sales numbers were not heartening. Yes, they were up, but we can thank Amazon for switching the dates of their Amazon Sales Days for that. Personal income growth is being restrained by the cutbacks in government assistance. Most of that is coming from people going off of unemployment insurance and into the work force, which is good. But wage and salary increases are still being swamped by the declines in unemployment payments. The reopening of businesses, though, has been the key to keeping income gains up, but the resurgence of the virus is putting that into question. We get the October income and spending report a week from tomorrow. That should be decent as it doesn’t include any of the new restrictions. It’s the November and December numbers that need to be good as well, since no new stimulus money would be available until next year even if they pass a bill today. And that ain’t happening. Industrial production can only hold up if households keep buying and they need income to do that. The surging stock market is great, but it doesn’t add to the disposable income of a huge segment of the population. Wall Street is not Main Street.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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