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Economic & Housing Weekly Note

Retail Sales Decelerate While Housing Continues to Impress

November 20, 2020

Key Takeaways:

  • Retail sales and food services rose 0.3 percent in October, according to the Census Bureau, a sharp deceleration from September’s growth, but still 4.5 percent above the level seen in January. Sales were driven by electronics/appliance stores, nonstore retailers, and building materials. Dragging on growth were broad-based declines across clothing stores, general department stores, and sporting goods & hobby stores. Core retail sales, which exclude auto, building material, food services, and gas station sales, edged up 0.1 percent.
  • Industrial production, a gauge of output in the manufacturing, utility, and mining sectors, rose 1.1 percent in October, according to the Federal Reserve Board. Manufacturing and utilities production increased, while mining output declined. Capacity utilization rose eight-tenths to 72.8 percent.
  • Housing starts rose 4.9 percent in October to a seasonally adjusted annualized rate (SAAR) of 1.53 million, 2.4 percent below the level seen in February, according to the Census Bureau. The increase was driven entirely by single-family starts, which rose 6.4 percent to a SAAR of 1.18 million, the highest level since April 2007. Single-family permits posted a significantly smaller gain of 0.6 percent, and multifamily permits fell 1.6 percent. Multifamily starts were unchanged at a SAAR of 351,000.
  • The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index rose 5 points in November to a series high of 90. This reading was the third consecutive month in which the index hit record highs. The indices gauging current sales, sales expectations for the next six months, and the index for the traffic of prospective buyers all increased.
  • Existing home sales rose 4.3 percent in October to a SAAR of 6.85 million, according to the National Association of REALTORS®. This represented the fifth straight month of growth and the highest level since February 2006. Sales rose in every region, with sales in the South and Midwest climbing to new all-time highs. Year to date, total sales were up 2.4 percent from the same period a year ago. Sales of single-family homes rose 4.1 percent to a SAAR of 6.1 million, and sales of condos/co-ops rose 5.8 percent to 730,000. The number of homes for sale (not seasonally adjusted) fell 19.8 percent year over year, the seventeenth consecutive month of declining inventories. The months’ supply fell two-tenths to 2.5, a record low. The median home price was $313,000, up 15.5 percent from a year ago, the fastest annual pace of growth since October 2005.
Forecast Impact:

The deceleration in October retail sales likely confirms our forecast of a slower pace of recovery for consumer spending, and thus growth, in the coming months. With new daily COVID-19 cases hitting all-time highs, many localities are reimplementing policies to help curb the spread of the virus. While we believe the likelihood of shutdowns with the breadth of those seen in April and May remains low, further localized shutdowns will likely weigh on sentiment and spending, which would further restrict a potential recovery until the growth in cases slows or an effective vaccine is widely distributed. The pace of recovery in the industrial sector also appeared to slow in October, which is in line with our expectation for business investment in the fourth quarter. Housing remained a bright spot for the economy in October, with new home construction continuing to rise past the levels seen prior to the pandemic. Since May, housing demand has remained mostly resilient to uncertainty, though this has drawn inventories of existing home sales to record lows. Given the lack of existing inventory, along with the resulting increase in existing home prices, homebuyers are shifting toward new homes, hence the increase in new home construction. While the pace of new sales will likely be constrained until construction picks up, homebuilders’ increasing sales expectations for the next six months support our outlook of strong near-term growth in residential investment.


Ricky Goyette
Economic and Strategic Research Group
November 20, 2020

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.