Morning Report: Retail Sales disappoint

Vital Statistics:

Stocks are flattish this morning as earnings season begins in earnest. Bonds and MBS are up.

Retail Sales rose 0.2% MOM in June, which was well below the Street consensus. On a year-over-year basis, they rose 1.5%. This number is not adjusted for inflation, and gasoline was a big driver of the decline. Consumers are spending money on health care products and restaurants. Consumption will probably begin to struggle as we approach the resumption of student loan payments in October.

Manufacturing took a step back in June, according to the Fed. Industrial production fell 0.5%, while manufacturing production fell 0.3%. May’s numbers were revised lower. Capacity Utilization fell to 78.9% which is more or less at the historical average.

Bank of America reported better-than-expected earnings this morning. Mortgage origination volume rose to $5.9 billion compared to $3.9 in Q1. This was still well below last year’s volume of $14.5 billion in Q222. Home Equity originations were flat YOY at $2.5 billion.

Delinquencies in the consumer book increased, however they are still below pre-pandemic levels. Commercial Real Estate provisions increased as well.

Homebuilder confidence improved one point in July, according to the NAHB Housing Market Index.

“Although builders continue to remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle,” said NAHB Chief Economist Robert Dietz.

Given that shelter inflation accounts for roughly 40% of the Consumer Price Index, Dietz added the best way to ease this largest source of inflationary pressure is to build additional for-rent and for-sale housing. “There’s been some commentary linking gains for housing construction with increased concerns for additional inflation, but this has the economics backwards,” he said. “More housing supply is good news for future shelter inflation readings in the market. Furthermore, higher interest rates increase the cost of financing for building homes and developing lots.”