New economic reports this week paint a picture of a U.S. economy that continues to gain momentum following a slow start to the year, due in part to increased e-commerce – despite some bumps in the road for manufacturing and housing.
Fewer Car Sales Mean Sluggish Manufacturing Numbers
Industrial production rose 0.2% in July from the month before, following an increase of 0.4% in June, according to Federal Reserve figures issued Thursday morning
In July, manufacturing output edged down 0.1% as the production of motor vehicles and parts fell substantially, marking the third straight monthly drop. That decrease was mostly offset by a net gain of 0.2% for other manufacturing industries. When the manufacturing sector is compared to a year earlier, it is up 1.2%.
The indexes for mining and utilities in July rose 0.5% and 1.6%, respectively, from the month before.
At 105.5% of its 2012 average, total industrial production was 2.2% above its year-earlier level.
“This report, which is the first definitive look at July's factory sector, is unexpectedly flat and puts an end to the run of recently strong economic data,” said analysts at Econoday. “Vehicle sales were up in July, but it has been a tough year for the sector. And given the decline in this report's manufacturing component, the upward momentum that the factory sector was showing looks less certain now.”
The report follows a separate one earlier in the month focusing exclusively on the manufacturing sector. It showed factory activity in July continued growing but the pace was slower than it was during June.
Manufacturing is estimated to make up about 12% of all U.S. economic activity.
E-Commerce Growing by Leaps and Bounds
A separate report released Thursday by the Commerce Department showed U.S. e-commerce in the second quarter grew significantly and faster than overall U.S. retail sales.
The 4.8% increase from the first quarter of 2017 is far better than the total hike in U.S retail sales of 0.5% during the first quarter of the year, which includes sales from brick and mortar stores.
When second quarter retail e-commerce sales are compared to the same time in 2016, they posted a 16.2% increase. E-commerce sales in the second quarter of 2017 accounted for 8.9% of total retail sales, up from an 8% share a year earlierm and is expected to continue growing
Earlier this month, the business research firm Forrester released a forecast that predicted online sales will account for 17% of all U.S. retail sales by 2022, up from a projected 12.7% share in 2017.
The report also forecast U.S. online sales to grow 13% in 2017 over 2016, which is five times faster than projected offline sales growth, and in line with the National Retail Federation’s estimates, according to Business Insider.
Housing Slows a Bit During July
Thursday’s reports follow one from earlier in the week showing a decline in both the number of new home starts and the building permits issued in July.
Nationwide housing starts fell 4.8% from June to a seasonally adjusted annual rate of 1.16 million units, according the Commerce Department.
Single-family production slipped 0.5% in July to a seasonally adjusted annual rate of 856,000 after a strong, upwardly revised June reading. Year-to-date, single-family starts are 8.6% above their level over the same period last year. Multifamily starts dropped 15.3% in July from the month before to 299,000 units.
“The overall strengthening of the single-family sector is consistent with solid builder confidence in the market,” said Granger MacDonald, chairman of the National Association of Home Builders. “The sector should continue to firm as the job market and economy grow and more consumers enter the housing market.”
Regionally in July, combined single- and multifamily housing production rose 0.6% in the South, and fell 1.6% in the West, 15.2% in the Midwest and 15.7% in the Northeast.
“New-home production numbers this month are in line with our forecast for a slow and steady recovery of the housing market,” said NAHB Chief Economist Robert Dietz. “We saw multifamily production peak in 2015, and this sector should continue to level off as demand remains solid.”
Overall permit issuance in July was down 4.1% to a seasonally adjusted annual rate of 1.22 million units. Single-family permits held steady at 811,000 units, while multifamily permits fell 11.2% to 412,000.
Not everyone is convinced the home market is quite as bright as NAHB indicated, including Stifel Fixed Income Chief Economist Lindsey Piegza.
“At this point, multi-family construction has slowed and single family construction, while improved, has failed to offset such a loss,” she said. “Momentum appears to be lateral at best, with housing activity maintaining a positive but modest trajectory as we head into the final months of the year."
Piegza noted the annual pace has fallen to a two-month low, and that’s during the time of year when homebuilding typically increases. Year-over-year, housing starts fell 5.6% in July, led by a 33.7% decrease in multi-family starts.
Economic Indicators Continue Improving
Despite these ups and down, the future for the economy continues looking upbeat, according to the private research group The Conference Board.
Its Leading Economic Index (LEI) for the U.S, which forecasts where the economy is headed in the next three to six months, increased 0.3% in July, following a 0.6% increase in June and a 0.3% increase in May. July marked the 11th consecutive monthly improvement.
“The U.S. LEI improved in July, suggesting the U.S. economy may experience further improvements in economic activity in the second half of the year,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board. “The large negative contribution from housing permits, a reversal from June, was more than offset by gains in the financial indicators, new orders and sentiment.”
The Conference Board’s Coincident Economic Index for the U.S., which measures current economic conditions, increased 0.3% in July to 115.7, following a 0.1% gain in June and a 0.3% improvement in May.
The Lagging Economic Index for the U.S., which measures past conditions, increased 0.1% in July to 124.8, following a 0.2% hike in June and a 0.2% upturn in May.
All this adds to hopes that the overall U.S. economy will find even more traction in the current quarter. The nation’s gross domestic product (GDP) increased at an annual rate of 2.6% in the second quarter, up from the 1.2% pace in the first quarter of the year.
“The LEI has increased for 11 consecutive months dating back to last September,” said Tim Quinlan, senior economist at Well Fargo Securities. “The last time this feat was achieved was in mid-2015, which turned out to be the strongest year of the [economic] recovery thus far. Our primary recession forecasting model utilizes the LEI as a key input, and with another positive print today, the model indicates that the probability of a recession in the next six months is low.”