Retail Sales Are Revised Upward, Strengthening Our Near-Term Outlook as Housing Activity Continues to Slow

Key Takeaways:

• Retail sales and food services increased 0.9 percent in April, while March’s figure was revised upward to a 1.4 percent gain from a 0.6 percent increase previously, according to the Census Bureau. Motor vehicle and parts dealers saw sales increase 2.2 percent, nonstore retail sales (mostly online sales) were up 2.1 percent, and sales at food services and drinking places rose 2.0 percent. Sales at gasoline stores declined 2.7 percent on lower prices. Core retail sales (excluding food services, autos, building supplies, and gas stations) increased 1.0 percent in April on top of a 1.2 percentage point upward revision to the March figure.
• Industrial production, a gauge of output in the manufacturing, utility, and mining sector, rose 1.1 percent in April, the fourth consecutive monthly increase, according to the Federal Reserve Board. Manufacturing output rose 0.7 percent, due in part to a 3.9 percent rise in motor vehicle and parts manufacturing, which exceeded its 2019 average level. Mining output increased 1.6 percent, likely due in part to higher oil and natural gas prices incentivizing more drilling, and utilities output rose 2.4 percent.
• Existing home sales declined 2.4 percent in April to a seasonally adjusted annualized rate (SAAR) of 5.6 million, the third consecutive monthly decline, according to the National Association of REALTORS®. The number of homes available for sale increased a non-seasonally adjusted 10.8 percent to 1.0 million, and the months’ supply for existing homes rose three-tenths to 2.2, its first time above 2.0 since November 2021. The median sales price was up 14.8 percent compared to a year ago, a slight deceleration of two-tenths from March.
• Housing starts declined 0.2 percent in April to a SAAR of 1.7 million, according to the Census Bureau. Single-family starts were down 7.3 percent to a SAAR of 1.1 million, the lowest rate since October 2021, while multifamily starts jumped 15.3 percent to a SAAR of 624,000, the highest level since 1986. Permits were down 3.2 percent, with single-family permits declining 4.6 percent to a SAAR of 1.1 million and multifamily permits falling 1.0 percent to a SAAR of 709,000.
• The National Association of Home Builders/Wells Fargo Housing Market Index dropped 8 points to 69 in May, the largest single-month drop since November 2018, excluding the initial COVID-induced shock. All major indices suffered large declines, with the index for single-family sales in the present declining 8 points to 78; the index for single-family sales in the next six months was down 10 points to 63, and the traffic of prospective buyers fell 9 points to 52. All three indices are at their lowest levels since the initial COVID outbreak.

Forecast Impact:

April retail sales were relatively strong even after accounting for inflation, but they were even more robust when considering the significant upward revisions to the March figures. The March revision suggests that Q1 GDP was likely stronger than the BEA’s preliminary reading, so we expect an upward revision to their next estimate of Q1 GDP. Further, we are likely to upwardly revise our Q2 personal consumption expectations as the quarter will now have started off at a higher level than previously thought. It appears that consumers are willing for now to dig deeper into savings and utilize more credit to overcome rising prices. We still believe the general trend of higher real personal consumption combined with falling real disposable incomes is unsustainable in the medium-to-long term, but for now, fears of an imminent recession have largely been assuaged. This is supported by the strong industrial production numbers for April. One important highlight: Motor vehicle production exceeded its average 2019 output in April, which could help sustain consumption growth, as we believe there is still significant pent-up demand for autos after more than a year of serious supply chain issues severely limiting auto inventories.

Recent housing activity is less encouraging, though both existing home sales and housing starts in April remained above their 2019 levels. A general decline in housing activity is in line with our forecast, as higher mortgage rates begin to fully take effect in coming months. The decline in the homebuilder sentiment index is somewhat more concerning, however, as lower homebuilder sentiment could affect the number of future housing starts. Still, we believe housing starts will decline more gradually compared to existing home sales. Homebuilders continue to have a significant backlog of orders from new homes sold but not yet started, attributable to the ongoing material and labor shortages that have caused builders to postpone projects and even decline new orders.

Nathaniel Drake
Economic and Strategic Research Group
May 20, 2022

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.