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Economic & Housing Weekly Note

Retail Sales Fall in November, while Housing Starts Continue to Climb

December 18, 2020

Key Takeaways:

  • Retail sales and food services dropped 1.1 percent in November after edging down one-tenth in October; the consecutive declines were the first since April, according to the Census Bureau. Despite the declines, the level of sales remained 3.2 percent above the level seen in January. Sales declined across the board, with notable decreases in sales at clothing stores, furniture/electronic/appliance stores, motor vehicle and parts dealers, and gas stations. Sales at building material stores rose 1.1 percent and now sit 12.8 percent above the level seen in January. Grocery store sales posted the first increase in four months. Core retail sales, which exclude auto, building material, food services, and gas station sales, fell 0.5 percent.
  • Industrial production, a gauge of output in the manufacturing, utility, and mining sectors, edged up 0.4 percent in November, according to the Federal Reserve Board. Manufacturing and mining production increased, while utilities output declined sharply, likely as a result of warmer-than-average weather. Capacity utilization rose three-tenths to 73.3 percent.
  • Housing starts grew 1.2 percent in November to a seasonally adjusted annualized rate (SAAR) of 1.55 million, according to the Census Bureau. Single-family starts rose by just 0.4 percent to 1.19 million, the highest level since April 2007. Multifamily starts rose 4.0 percent to 361,000. Single-family permits increased 1.3 percent to a SAAR of 1.14 million, also the highest level since early 2007. Multifamily permits jumped 19.2 percent to 496,000.
  • The National Association of Home Builders/Wells Fargo Housing Market Index fell four points to 86 in December, the first decline since April, though the index remains well above the level seen prior to the pandemic. All four of the regional indices declined. The indices gauging current sales, sales expectations for the next six months, and the index for the traffic of prospective buyers all decreased.
  • Mortgage applications rose 1.1 percent for the week ending December 11, according to the Mortgage Bankers Association. Purchase applications increased 1.8 percent, while refinance applications grew by 1.4 percent.
Forecast Impact:

The decline in November retail sales supports our expectation of a deceleration in consumer spending in the fourth quarter, though it is possible that some of the decline can be attributed to atypical seasonal patterns around Black Friday shopping. Given the nature of online shopping during the pandemic, sales that were once concentrated on Black Friday may have been spread into the following week, which would be captured in the December measure. Alternatively, it is also possible that the continued spread of the virus and lack of additional fiscal stimulus weighed more heavily on consumer behavior than it had in prior months. As COVID-19 cases continue to rise across the country, more localities have implemented measures to slow the spread of the virus. Even if a portion of the decline in retail sales is simply due to the seasonal adjustment, we believe further declines in December and January may be possible if broader shutdowns occur across the country, though we currently do not expect anything like the breadth of shutdowns seen in April and May of 2020. For housing, both the continued increase in housing starts, along with the increase in sales at building supply stores, support our expectation of a strong fourth quarter for residential investment. The increase in purchase mortgage applications in early December to the second highest level since early 2009 suggests to us that sales may be higher in the short run than we had previously forecast, but given the dearth of available inventories, we believe the pace of sales will be constrained until more new construction can come online.


Ricky Goyette
Economic and Strategic Research Group
December 18, 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.