Industrial production rose again in April for the third consecutive month, according to Federal Reserve figures issued Wednesday, while separate reports show a decline in new home sales and a smaller gain in retail sales.
The central bank’s measure of the total output from the nation’s factories, mines and utilities advanced 0.7% in April from the month before. The rates of change for industrial production for previous months were revised downward, with output now reported to have advanced at a 2.3% annual rate in the first quarter of the year.
April manufacturing output rose 0.5% in April following no change in March while measures of mining and utilities moved up 1.1% and 1.9%, respectively. At 107.3% of its 2012 average, total industrial production in April was 3.5% higher than it was a year earlier.
Capacity utilization for the industrial sector climbed 0.4 of a percentage point in April to 78%, a rate that is 1.8 percentage points below its 1972–2017 average.
“Unequivocal strength is the message,” said analysts at Econoday. They noted the standout gain in the manufacturing sector came from business equipment, where volumes rose 1.2%, “which point to second-quarter strength for business investment,” while production of consumer goods reported a 0.9% gain.
“Manufacturing in this report may finally be coming alive, joining the host of small sample surveys which have long been reporting strength and moving perhaps in line with acceleration underway in the factory orders report,” Econoday said. “Though tariff effects are a wildcard, manufacturing looks to be an outstanding contributor to this year's economic growth.”
Home Starts Down, Builders Remain Optimistic
In the home building sector, a pair of reports were mixed.
One showed new home starts fell in April from the month before, according to the Commerce Department. Total new home starts declined 3.7% to an adjusted annual rate of 1.287 million, erasing the 3.6% increase in March, but that’s 10.5% higher than compared to April 2017.
Single-family home starts, the biggest share of the market, performed better, advancing 0.1% month-over-month. New construction of multi-family units tumbled more than 12%.
The number of building permits issued, an indicator of future home building activity, declined 1.8% in April from March but advanced 7.7% when compared to the same time a year ago.
Analysts at Wells Fargo Securities seemed little concerned about the overall decline. They noted this spring’s soft headline numbers are mostly due to volatility in apartment starts, which are showing some signs of topping out.
“An earlier jump in single-family starts in January and February meant that starts were already at a lofty level going into the spring and made it difficult to post large seasonally adjusted gains,” Wells Fargo said.
A separate report from the National Association of Home Builders showed builder confidence in the market for newly built single-family homes rose two points to a level of 70 in May after a downwardly revised April reading, according to the National Association of Home Builders/Wells Fargo Housing Market Index. This is the fourth time the HMI has reached 70 or higher this year.
“The solid May report shows that builders are buoyed by growing consumer demand for single-family homes,” said NAHB Chairman Randy Noel. “However, the record-high cost of lumber is hurting builders’ bottom lines and making it more difficult to produce competitively priced houses for newcomers to the market.”
The HMI gauging current sales conditions increased two points to 76 in May. The indexes measuring buyer traffic and expectations in the next six months remained unchanged at 51 and 77, respectively.
“Tight housing inventory, employment gains, and demographic tailwinds should continue to boost demand for newly built single-family homes,” said NAHB Chief Economist Robert Dietz. “With these fundamentals in place, the housing market should improve at a steady, gradual pace in the months ahead.”
Derived from a monthly survey, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months.
Retail Sales Growth in April Lower Than March’s Banner Performance
U.S. retail sales in April posted a moderate gain from the month before, rising an expected 0.3%, according to the Commerce Department, a slowdown from the 0.8% spike seen in March, which was upwardly revised from a 0.6% increase.
When April retail sales are compared to the same time in 2017, they posted a 4.7% gain.
Core retail sales, which exclude sales of autos, gasoline, building materials and food services, rose 0.4% in April from the month before, down from the 0.5% performance turned in for March.
Overall consumer spending declined sharply in the first quarter of the year, hitting its slowest pace in almost five years. This was evidenced by the fact the nation’s gross domestic product expanded at an annual rate of 2.3% in January through March, down from the 2.9% pace in the final quarter of 2017.
Following the release of these new retail sales numbers, some analysts cautioned that rising gasoline prices, especially as the summer driving season nears, could blunt other retail spending and overall economic growth. One estimate said higher gasoline prices removed more than $4 billion in April that consumers could have spent on other retail items.
Consumer spending, which accounts for more about two-thirds of total U.S. economic activity, grew at a 1.1% annual rate in the first quarter, the weakest improvement since 2013.
“Earlier weakness [in consumer spending] was explained away by seasonal or unfavorable winter weather, but the continued moderate pace into the second quarter suggests there was more than Mother Nature at work forcing consumers to tighten their purse strings early on at the start of the year,” said Stifel Chief Economist Lindsey Piegza in a note to investors.
She said the disappointing impact from tax reform, coupled with still modest wage growth, were likely the key components for less-than-stellar spending activity.