The latest reads on Housing Starts and Building Permits for the month of June were released earlier this morning and showed mixed results relative to expectations (starts slightly better than expected, permits modestly weaker).  The table below breaks down the report by single and multi-family units as well as on a regional basis.  Two notable trends that stand out in the table concern single-family vs multi-family and regional trends.  First, for both starts and permits, single-family was stronger than multi on both a m/m and y/y basis. Single-family units have more of an economic impact, so it’s good to see strength on that score.  On a regional basis, we found it interesting to see that while most regions of the country experienced double-digit y/y increases in starts, permits in all-four regions were down by at least 9% on a y/y basis which would suggest that the pipeline for future starts is getting smaller.

Below are a couple notable charts worth highlighting from the report. On a 12-month average basis, both Housing Starts and Building Permits are down sharply from their early 2022 peaks, but the last few months have seen some stabilization in the pace of starts. Permits, meanwhile, remain stuck in their trend, and based on the current pace and where they were last fall, we’re unlikely to see any stabilization in this reading over the course of the next few months.

Last but not least, the chart below compares the trend in Housing Starts over a three-month rolling basis to the performance of homebuilder stocks as tracked by the iShares Home Construction ETF (ITB), and it provides a great example of how the market is always looking past the headlines.  Even as Housing Starts continued to crater in the middle of 2022, homebuilder stocks began what looked like an inexplicable rally, but just as stocks in the group peaked ahead of the peak in Housing Starts in April 2022, they also bottomed well before the February low.

As the national average for a 30-year fixed rate mortgage eclipsed 7.5%recently, homebuilder sentiment has turned lower.  The Housing Market Index from the NAHB fell to 50 in August from 56 the previous month. That six point drop month over month ranks as the eleventh largest decline in the survey’s nearly 40-year history.

Homebuilders reported significantly weaker sentiment across the board with mid-single digit declines for present and futures sales as well as traffic. Geographically likewise also saw broad declines.  The West experienced the biggest drop and now has the lowest reading with respect to its historical range. Meanwhile, the Northeast index has managed to hold at a more historically healthy level, albeit it too fell significantly in August.

Homebuilder stocks are trading higher today, but they have come well off the early highs since the release of the sentiment numbers.  As things stand for the group, the past month has seen the homebuilders consolidating as they continue to trade handily above their respective 50-DMAs.

The New York Fed published the first of regional manufacturing surveys this morning, and results were disappointing.  Whereas last month saw a slightly expansionary reading of 1.1 in the headline index, the August reading fell firmly back into contraction at a level of -19 far exceeding forecasts of -1.

In the table below, we show each category of the report. As shown, the drop in the headline number was almost entirely driven by significant deterioration in new orders, shipments, and employment metrics.  Breadth otherwise was actually fairly positive.  As for six month expectations, readings across the board have been much healthier. In addition to significant increases month over month (many of which rank in the top decile of historical monthly changes), these readings are not as historically weak as their corresponding levels for the current condition indices.

As previously mentioned, the big drop in the headline index was largely driven by weakness in new orders and shipments.  Each of those (as with the headline index) fell by more than 20 points month over month which ranks in the 3rd percentile of all monthly moves.  That shift from slightly expansionary to historically contractionary readings is another bout of volatility in these readings consistent with big swings in previous months. Amidst that volatility, these readings have generally pointed to the side of demand having weakened, but expectations have begun to move in the opposite direction.  As shown below, expectations indices for new orders, shipments, and unfilled orders have all reached the highest level since March 2022.

Both prices paid and received rebounded in August with those month over month increases coming in the 87th and 91st percentiles, respectively, of all monthly changes. In spite of those increases, that overall picture of prices trending lower remain in place.

As mentioned earlier, aside from new orders and shipments, employment metrics were the other point of weakness for current condition indices.  However, number of employees is the most elevated category of all expectations indices after a 96th percentile month over month increase in August.  Meanwhile, both capital expenditures and technology spending likewise experienced large month over month jumps in August. All combined, that would indicate a dramatic turnaround in manufacturing firms spending plans.

Major retailers are set to report earnings over the next couple of weeks as the Q2 reporting period winds down.  Before highlighting a list of the names set to report, below is a look at the performance of the “Bricks and Mortar” Retail index run by Solactive-ProShares since COVID hit in February 2020.  Already on death’s door prior to COVID due to the “bricks to clicks” trend of shoppers ditching trips to stores for supposedly more convenient online shopping, pandemic lock-downs were supposed to be the final nail in the coffin for physical retail stores.  Fast forward to today, and you may be surprised to see that brick-and-mortar retail has actually outperformed the S&P 500 by more than 50% since COVID hit.  As shown below, the Brick and Mortar Retail index did fall more than SPY during the COVID Crash in February and March 2020, but the bounce back for retail was much more pronounced coming out of COVID in late 2020 and 2021.  While the retail index has generally trended sideways for the last two years now, so has the S&P 500.  At this point, the Brick and Mortar index is up 71.6% since 2/19/20 on a total return basis compared to SPY’s total return of 39.1%.  Just when investors think they have a check-mate situation, the market always seems to have a counter move.

As shown below, more than half of the major stocks in the Brick and Mortar index are set to report by the end of August.  Target (TGT) and TJX (TJX) will report ahead of the open tomorrow, followed by Walmart (WMT) on Thursday morning.  Other big names like Lowe’s (LOW), Dick’s (DKS), BJ’s (BJ), Foot Locker (FL), and Ulta Beauty (ULTA) will report next week.

Looking at the table, some of the best performers in the group this year have been names like Dick’s (DKS), Lowe’s (LOW), Walmart (WMT), Ollie’s Bargain (OLLI), Signet Jewelers (SIG), and Costco (COST), while names like Target (TGT), Foot Locker (FL), Dollar General (DG), and Walgreen (WBA) have gone in the opposite direction and traded lower.  Over the last ten years, three names on the list are up more than 500% — Lowe’s (LOW), Costco (COST), and O’Reilly Automotive (ORLY) — while AutoZone (AZO) is currently up 499.2%.