Comerica Economic Weekly, January 23, 2023

Bill Adams

,

Waran Bhahirethan

Retail Sales

The Week in Review


Retail sales, industrial production, and housing starts and permits fell in late 2022, a sign the goods side of the economy was contracting at the turn of the year.

Retail sales fell 1.1% in December, worse than the consensus forecast for a 0.8% decline; November was revised down to a 1.0% decline from a 0.6% decline. Motor vehicle and parts dealer sales fell 1.2% as seasonally-adjusted auto sales fell to 13.3 million annualized from 14.1 million in November. Non-store retailer sales, mostly e-commerce, fell 1.1%. Spending on food services fell 0.9%, implying a real decline of over 1% since the price of food away from home rose 0.4% in the December CPI report. 

Industrial production fell by 0.7% in December, following a 0.6% decline in the previous month. In Q4 ’22, industrial production contracted by 1.7% annualized. Manufacturing, which accounts for roughly 75% of industrial production, fell by 1.3% last month after a 1.1% decline in November, revised from a 0.6% decline. Mining output fell 0.9% in December, while utilities output jumped 3.8%. Capacity utilization again fell sharply and at 78.8% was below its long-term average of 79.6% for a second consecutive month. Sharp contractions in new orders from domestic and foreign clients in manufacturing PMI surveys point to further weakness in industrial production in early 2023.

Building permits fell 1.6% in December to a seasonally adjusted annualized rate (SAAR) of 1.330 million and were down nearly 30% from March, when the Federal Reserve began raising rates. Housing starts fell 1.4% last month to a SAAR of 1.382 million and were down by a quarter from their peak in April. National average rates for a 30-year fixed mortgage have pulled back by nearly a percentage point from their peak above 7% in October, but are still up three percentage points over the last year; housing will be a headwind to the economy in 2023.

The Producer Price Index (PPI) for final demand fell 0.5% in December, well below consensus forecasts for a decrease of 0.1%. On a year-ago basis, PPI final demand eased further to 6.2% from 7.3% in November. Core PPI also declined on an annual basis to 4.6% from 4.9%. The decline in PPI final demand was due to a sharp decline in goods prices, particularly gasoline prices, which fell 13.4%. PPI final demand for services edged up 0.1%. Going forward, the reopening of the Chinese economy following the end of zero COVID policies could reverse some of the sharp declines in commodity prices in late 2022 and revive upward pressure on producer prices in the coming months.

 
Preview of the Week Ahead


The first estimate of GDP for the fourth quarter of 2022 is the week’s most important release. Real GDP was likely positive, but slower than in the third quarter. Consumer spending on new autos rose, but spending on other goods fell, and growth of spending on services likely slowed. The trade deficit was likely neutral for growth after being a big headwind in the first half of the year, and businesses likely added to inventories more slowly, subtracting from growth. Seasonally-adjusted fixed investment was likely lower, with residential and nonresidential construction spending down.

S&P Global’s preliminary releases of purchasing managers indexes for January will likely hold in contractionary territory, and durable goods orders likely fell in December. The personal income and outlays report on Friday will likely show the Fed’s preferred measure of inflation slowed at year-end, and an uptick in the household saving rate from historically low levels reached back in the fall. 



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January 23, 2023
Bil Adams, Senior Vice President and Chief Economist at Comerica Bank

Bill Adams

Senior Vice President and Chief Economist
Waran Bhahirethan, Vice President and Senior Economist at Comerica Bank

Waran Bhahirethan

Vice President and Senior Economist

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