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The Line: The Latest on Retail Sales, Jobless Claims, Home Sales, and the Recession Debate

Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

Retail Sales Unchanged in July

This may not sound that exciting, but if you look at the details of the Census Bureau’s recent report there’s some pretty good news in there. Big declines in auto sales—from inadequate inventory—and gasoline—from falling prices—kept the overall retail sales number from increasing. If we remove autos and gasoline, sales rose 0.7% in July. It seems that the money consumers were saving at the pump went towards online purchases, which were up 2.7% last month. So, while not worthy of a party, this data proves that consumers are still hanging on for now. If gas prices continue to decline, it will offer hope that inflation, while still too high, may have already peaked. Remember that consumer prices were unchanged last month, the first month since May of 2020 without an increase. I understand that prices are still 8.5% higher than a year ago, but I’ll take any good news on inflation I can find.

Weekly Jobless Claims Fall to 250,000

There is more good news on the labor market, with jobless claims coming in 10,000 lower than expected. The Federal Reserve has been watching this data closely, even noting at its July meeting that the outlook for the labor market was softening. One good weekly report doesn’t disprove that, but I’m still in happy vacation mode, so I will enjoy it for now.

Existing Home Sales Fell 5.9% in July

Now for some bad news. Sales were down for the sixth consecutive month and were 20.2% lower than a year ago. Lawrence Yun, the National Association of Realtors’ chief economist, went so far as to say the U.S. is currently in a housing recession. While this report shouldn’t surprise anyone, that doesn't make it any easier to read. We know that low inventory has driven prices up 10.8% over the past year while mortgage rates have jumped higher. This has priced many buyers out of the market. That said, there is some hope for the future. The NAR noted that inventory rose to a 3.3-month supply of homes for sale last month, which should help bring prices down a bit. We also must remember that this report is based on closed sales, where contracts were most likely singed in May and June. At that time, mortgage rates were approaching 6%. Freddie Mac reported yesterday that 30-year rates are currently averaging 5.13%, which combined with softening prices should draw more buyers back to the market.

U.S. Leading Economic Indicators Fall for Fifth Straight Month

This report will add more fuel to the recession debate, as it suggests the economy will continue to soften in the coming months. For those who may not know, here are the ten indicators used by the Conference Board to calculate this index:

  • Average weekly hours in manufacturing

  • Average weekly initial claims for unemployment insurance

  • Manufacturers’ new orders for consumer goods and materials

  • ISM® Index of New Orders

  • Manufacturers’ new orders for nondefense capital goods excluding aircraft orders

  • Building permits for new private housing units

  • S&P 500® Index of Stock Prices

  • Leading Credit Index™

  • Interest rate spread (10-year Treasury bonds less federal funds rate)

  • Average consumer expectations for business condition

As I’ve mentioned before, I don’t think you can say we’re in a recession yet, as unemployment is sitting near a 50-year low and companies are still hiring at a brisk pace. But as the Federal Reserve keeps hiking rates to lower inflation, the risk of recession will continue to grow.

Finally, I’d like to end today’s column on a happy note.

Consumers May Be Cutting Back on Many Items, but Tipping Isn't One of Them

According to the Toast Q2 Restaurant Trends Report, customers are still tipping at high levels in restaurants despite the rising cost of food. Tips averaged 19.6% at full-service, and 16.9% at quick-service restaurants in the second quarter.

This report is full of interesting data, including which states tip the most. Indiana remained at the top of the list, with a 21.0% average tip size. So, who’s the least generous state you ask? California takes that award, with an average tip size of 17.5%. New York was in 47th place, at an average of 18.5%.

You can view the full report at this link.

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