Week of July 21
Mamma They’ve Gone Home
What a week: Ozzy, Hulk, Malcom-Jamal, and Chuck. The first two were a lot of my teen 80s years.
It was a reasonably quiet economic week, with the only release of note being U.S. new home sales. That release showed the continued difficulty facing homebuilders and underscored that a pronounced slowdown in single family starts could be in the offing.
As Hulk would say: “Say your prayers, eat your vitamins”. The data coming this week will be pivotal in understanding the trajectory of economic growth in the U.S.
Important Data Points From The Past Week
Canadian Industrial Price and Raw Material Prices Indices
Prices of products manufactured in Canada accelerated slightly in June, rising 0.4% on a month-over-month basis and are now 1.7% higher than one year ago. Excluding energy, prices are now up 3% from a year ago. Raw material prices purchased by Canadian manufacturers jumped 2.7% in the month and are 1.1% higher than a year ago.
The leading reason for the acceleration was a 31% increase in prices for gold, silver, and platinum. It’s likely these higher prices are a measure of gold’s value as a safe-haven investment.
From a construction perspective, price increases were rather tame. This isn’t surprising considering the downturn in U.S. demand for building products as well as U.S. builders seeking a more diverse supply chain to avoid steeper tariffs.
Canadian Retail Sales
Canadian retail sales fell 1.3% from April to May (in constant dollars). Sales were driven lower by auto sales, food and beverage, and gas stations. On the positive side, there was a big gain (+3% for the month) in building material and garden – while a middling category it’s an important barometer of what consumers are willing to do with disposable income.
Trade tensions with the U.S. remain at the front of mind for Canadian retailers and consumers, as noted in the text that Statistics Canada released with the data; “questions asked to respondents show that 32% of retail businesses were impacted by the trade tensions in May, compared with 36% in April. The most common impacts in May were price increases, change in demand for product and increased expenses for raw materials, shipping or labour.”
Since we’re in July this is backward-looking data. My sense from a brief visit to Canada last week is that stores were not very full and restaurants were less busy than normal. This latter statement confirmed by asking waiters and bartenders. One thing I did notice, though, was that people were spending more time in the evenings in their backyards with family and friends. The butcher shop where we got steaks was busy, as were the farmers’ markets. While anecdotal, perhaps this is a sign that Canadian consumers are retrenching slightly and spending more time close to home.
U.S. New Home Sales
New home sales posted a tepid increase in June, rising 0.6% from May to a seasonally adjusted annual rate of 627K. On a year-over-year basis, sales are down nearly 7%. The months’ supply of homes on the market rose from 9.7 in May to 9.8 in June. The median sale price of new homes fell 4.9% on the month.
Home sales have shown a marked slowdown over the last several months as high rates, lack of affordability, and economic uncertainty have weighed heavily on activity. The increase in the months of available homes on the market in addition to the falling prices shows that homebuilders are doing what they can to mark down prices or buydown rates, but potential homebuyers just won’t bite (explains the significant downturn in homebuilder confidence doesn’t it??). There’s no way home sales will show any significant improvement over the short term under these conditions.
U.S. Durable Goods Orders
New orders for non-defense capital goods were down in June, falling 0.7% from May. Orders have remained resilient over the past three months despite tariff and economic concerns. It’s hard to see this continuing though given the pullback we’re seeing in hiring and general business confidence.
From a construction standpoint, new orders for construction machinery are coming in on my target forecast. However, my forecast for construction material orders looks too positive and will need to be revisited. As will the forecasts for appliances and fabricated metal products, which are looking better than anticipated.
What I’ll Be Watching This Week
A busy data week in the U.S.: GDP, the FOMC policy announcement, PCE deflator, the jobs report and construction spending. In Canada we’ll get a policy announcement from the Bank of Canada.
What I Listened To Last Week
I was never a huge fan of Ozzy or Black Sabbath for that matter. My musical tastes tend to drift more towards bands like The Who. But if my wife isn’t around and I have control of the kitchen audio Iron Maiden will surely be playing. The Tribute live album was released in 1987 as a homage to his amazing guitar player Randy Rhoads who died in a plane crash in 1982. I would offer this was peak-Ozzy from a musical standpoint. Then you add in Rhoads amazing musicianship, and you have an incredible album.
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