Weak Retail Sales, Mortgage Activity Point to Stumbling U.S. Economy
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Less Americans are applying for mortgages and retail sales growth is decelerating amidst sluggish demand from consumers.
The Commerce Department reported retail sales excluding cars rose 0.1% in July, down from 0.2% in June. In a separate report, the Labor Department saw inflation-adjusted average weekly earnings fall by 0.2% in the 12 months to June 2014, the biggest decline since October 2012.
Less Americans are applying for mortgages and retail sales growth is decelerating amidst sluggish demand from consumers.
The Commerce Department reported retail sales excluding cars rose 0.1% in July, down from 0.2% in June. In a separate report, the Labor Department saw inflation-adjusted average weekly earnings fall by 0.2% in the 12 months to June 2014, the biggest decline since October 2012.
Retail sales were unchanged at 3.7% growth on a year-over-year basis, with the biggest gains coming from new car purchases. General merchandise, including department and warehouse store purchases, were up 1.2% on a year-over-year basis. Clothing and electronic purchases rose by 1.4% on a year-over-year basis.
Economists suggest that a mix of limited credit and stagnant wage growth is keeping consumers from spending more, which in turn has kept total retail sales sluggish. Additionally, credit demand is kept muted by less change in interest rates. Since the largest declines in credit rates have already passed and most mortgage refinance activity occurred between 2011 and 2013, analysts believe new home purchases will need to drive mortgage activity in the future.
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Strong Vehicle Sales
While most retail sales were moribund, car sales saw strength thanks to easy credit and pent-up demand. Car and truck sales rose 6% in July on a year-over-year basis, according to the Commerce Department. However, purchases were down 0.2% from the prior month.
Toyota recently announced sales had risen 11.6% in the last month, which was the company’s best record for July since 2007. Ford, Nissan, and Chrysler have also recently reported sales volumes have risen by over 9% in July.
Falling Mortgage Demand
The Mortgage Bankers Association announced Wednesday morning that mortgage applications fell 4% from the previous week, indicating that less people are buying and refinancing real estate despite falling mortgage rates. Refinancing has fallen substantially since a year ago, with the MBA’s Refinance Application Index down 75% from May 2013 levels.
The MBA also noted that home buying activity is down slightly. The MBA’s seasonally adjusted Purchase Application Index fell 1% from the prior week, reaching its lowest level since February 2014. On an unadjusted basis, the Purchase Index is down 10% from a year ago.
Interest rates for a 30-year fixed rate mortgage with balances of $417,000 or less remained at 4.35%, with points for 80% loan-to-value mortgages unchanged at 0.22 on average, including origination fee.
Declining Gas Prices to Come
In addition to falling home buying activity, analysts expect Brent crude oil to see minimal price gains that could cause gas prices to fall by the end of 2014. According to the EIA, gasoline prices are projected to fall to $3.30 per gallon by December.
After climbing to a high of $3.70 in early April, average gas prices have fallen to around $3.50 per gallon at a steady rate since early July.
Low energy costs may help stimulate domestic economic activity, as consumers spend more aggressively in the holiday season thanks to freed up cash not spent at the pump.
