Retail sales performed poorly in June, notching the worst reading of the second quarter with the slowest growth since March, the U.S. Census Department reported this morning. Sales grew just 0.2% on a month-over-month basis (m\/m), much less than the consensus estimate of 0.5% and May\u2019s 0.5% increase. On a year-over-year (y\/y) basis, retail sales grew 1.5%, below forecasts expecting 1.6% and the previous period\u2019s 2.0%. Redbook’s retail sales data also confirm these weak trends, with weekly y\/y sales contracting for the first time since the pandemic.<\/p>\n\n\n\n
Sales were helped mostly my miscellaneous store retailers and ecommerce, which experienced gains of 2% and 1.9%, respectively, during the period. Furniture, electronics, and apparel also helped, with increases of 1.4%, 1.1% and 0.6%. Automobiles and parts and dining establishments contributed at more tempered degrees. Weighing on the headline were department stores, gasoline stations, building materials shops, sporting goods retailers, supermarkets and the category of health and personal care stores with declines of 2.4%, 1.4%, 1.2%, 0.7%, and 0.1%, respectively.<\/p>\n\n\n\n
Also during June, industrial production contracted significantly, according to data from the Federal Reserve. The decline was driven by reduced consumer demand due to higher interest rates that has pushed manufacturing into a deep freeze state. Production fell 0.5% m\/m, much worse than projections anticipating no change. Furthermore, June\u2019s contraction was roughly 8 basis points (bps) deeper relative to May\u2019s and the sharpest decline since December of last year. Under the hood, the manufacturing index fell 0.3% while mining and utilities fell 0.2% and 2.6%.<\/p>\n\n\n\n While manufacturing remains surrounded by wintry cold conditions, the real estate sector is bouncing back as prospective home buyers turn to the new construction market for inventory solutions that the existing home market can\u2019t solve. Homebuilder sentiment rose for the seventh consecutive month in July, according to the National Association of Home Builders\/Wells Fargo Housing Market Index. Low mortgage rates enjoyed by existing homeowners amidst high mortgage rates for buyers is weighing on sales because the low rates are incentivizing existing homeowners to stay put. Homebuilder sentiment rose to 56 in July, exactly as expected and higher than June\u2019s 55 level. Builders are cautious, however, with higher mortgage rates from here likely to derail the sector\u2019s recovery. Still, builders haven\u2019t had to resort to incentives as frequently to close sales, with only 22% of them providing concessions in July, a reduction from June and May\u2019s levels of 25% and 27%.<\/p>\n\n\n\n Banks continue to believe that consumers are keeping healthy finances. During an earnings call this morning, Brian Doubles, CEO of consumer credit card and banking services provider Synchrony Financial, said the organization\u2019s provision for credit losses increased from $724 million a year ago to $1.38 billion in the second quarter due to a higher rate of net charge offs on loans. He maintains that the increase is a result of consumers continuing to move back to pre-pandemic norms and the shift is occurring at a pace that the bank has anticipated. With a tailwind of rising net interest income, the company\u2019s earnings per share of $1.32 exceeded the consensus expectation of $1.22. Also this morning, Bank of America CEO Brian Moynihan said the economy is healthy but growing at a slower pace. The bank\u2019s consumer banking division grew its revenues 15% to $10.5 billion, underscoring the financial health of consumers despite the company\u2019s credit card loss increasing slightly as consumers struggle with higher card balances and higher interest rates. The bank reported second-quarter earnings of $0.88 a share, beating projections of $0.84.<\/p>\n\n\n\n Meanwhile, Prologis, which is the world\u2019s largest operator of warehouses and other industrial properties, says its occupancy rate dropped slightly to 97.5% in the second quarter from 98% during the first three months of this year, potentially signaling weakening demand for warehouses. Its second-quarter earnings of $1.83 a share exceeded the consensus expectation of $1.68 a share and the company increased its full-year earning guidance.<\/p>\n\n\n\n Markets are reacting positively to slower economic data that may allow the Federal Reserve to avoid another 25-bp hike in September or November. Well received earnings are also supporting hopes for the soft-landing narrative, as investors bet that economic data can continue weakening slow enough without the country slipping into a recession, thereby supporting higher profits in the medium-term. The S&P 500 Index reached another recent high today, with prices up 0.6% to 4,547. Participation has been broad based, with all sectors higher except for real estate and technology. Energy is leading, with shares higher by 1.7% on the back of WTI oil prices leaping 1.5% to $75.27 per barrel. Technology is the laggard, with the Nasdaq Composite Index down 0.2% while all other major U.S. indices are higher. Softer economic data are also weighing on yields and the dollar, with the 2- and 10- year maturities down 3 and 4 bps to 4.7% and 3.75%. The Dollar Index, meanwhile, is down 7 bps, as investors feel that the need for more Fed tightening is dwindling. <\/p>\n\n\n\n![\"Retail](\"\/campus\/wp-content\/uploads\/sites\/2\/2023\/07\/Picture1-10.png\")
<\/figure>\n\n\n\nHomebuilder Optimism Grows<\/strong><\/h2>\n\n\n\n
Optimism About Consumers Continues<\/strong><\/h2>\n\n\n\n
Logistics Activity Appears to Sag<\/strong><\/h2>\n\n\n\n
Investors Bet on Less Hawkish Fed<\/strong><\/h2>\n\n\n\n
Corporate Margins Face Stiff Headwind<\/strong><\/h2>\n\n\n\n
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