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Retail Sales Fall Short

Overview: Last week, the release of the hugely important Consumer Price Index (CPI) inflation report caused a significant decline in mortgage rates. Since then, it has been relatively quiet, and mortgage rates ended the past week with little change.


Since consumer spending accounts for over two-thirds of U.S. economic activity, retail sales data is a closely watched measure of the health of the economy. In June, retail sales rose a modest 0.2% from May, well below the consensus forecast for an increase of 0.5%. There were positive revisions to the results for May, though, making the report roughly neutral overall. Looking at the details, the greatest strength was seen in electronics stores and furniture outlets, while restaurants and bars posted slight gains. Gas stations and building materials stores revealed declines from the prior month.

With a severe shortage of homes available for sale, more inventory is desperately needed in many regions. However, after an enormous surge in May, the pace of new construction slipped more than expected in the latest report. Housing starts in June declined 8% from May to an annual rate of 1.43 million units, below the consensus forecast of 1.48 million. On a brighter note, single-family building permits, a leading indicator, increased 2% from the prior month.

A separate survey of home builder sentiment from the National Association of Home Builders (NAHB) rose as expected to the highest reading since June 2022. Given the persistent shortage of previously owned homes on the market, new homes currently account for roughly 35% of sales, far above the 10% to 15% typically seen prior to the pandemic. Builders continue to list tight credit conditions for construction loans and high prices for land, labor, and materials as obstacles.


Retail Sales (% change)

Week Ahead

July 20 — Existing-Home Sales report

July 25 — Consumer Confidence Index

July 26

Federal Reserve meeting (25 basis-point increase expected)

New-Home Sales report


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