Retail Sales Remain Strong in September as Single-Family Starts Continue to Rebound

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Key Takeaways:

• Retail sales and food services increased 0.4 percent in September, according to the Census Bureau. Sales at stores with big ticket items, including motor vehicle and parts dealers (flat over the month), furniture stores (-1.4 percent), and electronics and appliance stores (-3.3 percent) were generally soft. However, this was offset by strong sales at grocery stores (+1.0 percent), health and personal care stores (+1.1 percent), and miscellaneous store retailers (+4.0 percent), all of which may have been affected by consumers stocking up on goods in preparation for hurricanes. Sales at restaurants and bars were up 1.0 percent, their strongest monthly gain since November 2023. Control group retail sales (excluding food service, auto, building supplies, and gas station sales) increased by a strong 0.7 percent.
• Industrial production, a gauge of output in the manufacturing, utility, and mining sectors, declined 0.3 percent in September, according to the Census Bureau. Additionally, August's originally reported 0.8 percent gain was revised downward to just a 0.3 percent increase. Manufacturing activity declined 0.4 percent to 99.1. Mining activity declined 0.6 percent to 118.2, while utilities output rose 0.8 percent to 106.8.
• Housing starts declined 0.5 percent in September to a seasonally adjusted annualized rate (SAAR) of 1.35 million, according to the Census Bureau. Single-family starts rose 2.7 percent to reach a SAAR of 1.027 million, a five-month high. This followed a 16.1 percent jump in August, which was a rebound after hurricane disruptions in July. Single-family permits were more measured with a 0.3 percent increase to a SAAR of 970,000, though that's also the best pace since April. Multifamily starts declined 9.4 percent to a SAAR of 327,000, while multifamily permits declined 8.9 percent to a SAAR of 458,000.
• The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index increased 2 points to 43 in October, a four-month high. The index for single-family sales in the present rose 2 points to 47, while the index for single-family sales in the next six months rose 4 points to 57, the highest level since April. The index for the foot traffic of prospective buyers rose 2 points to a still subdued 29.

Forecast Impact:

The September retail sales report is supportive of our forecast for strong consumption in the third quarter. Control group retail sales, which flow directly into the Bureau of Economic Analysis's estimate of personal consumption expenditures (PCE), have now posted strong increases for five consecutive months. We expect a bit of a slowdown in PCE in the fourth quarter toward something closer to the long-run trend growth rate, though we caution that recent hurricanes may distort the underlying trend in consumption growth over the next few months. Separately, the industrial production report continues to show that manufacturing activity has been roughly stagnant since January of last year. While this is more positive than the manufacturing surveys that have indicated the sector has been in outright contraction over that period, higher interest rates are likely continuing to weigh on growth in manufacturing.

The strong gain in single-family starts was a bit above our expectations, though the typically more indicative series for single-family permits was in line with our forecast. While we expect some short-term volatility in the starts data following the hurricanes in Florida and surrounding states, the underlying trend for single-family construction remains positive. The particularly strong 4-point gain in the homebuilder confidence index for sales in the next six months adds to the bullish case for new home construction. Multifamily starts have been weaker, though, in line with our forecast. With a significant number of multifamily construction projects already underway, we expect multifamily starts will continue to soften through the end of 2024.

Nathaniel Drake
Economic and Strategic Research Group
October 18, 2024

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic & 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, beliefs, 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, beliefs, 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.

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