The Weekly Briefing - November 23rd, 2020

The Weekly Briefing – November 23rd, 2020:

In This Week’s Brief:

  • Retail Sales Growth Slows in Last Monthly Report; Up 4.5% YOY
  • Homebuilding Activity Continues to Show Strength
  • Industrial Sector Improving but Still below Pre-Pandemic Levels

Retail Sales Growth Slows in Last Monthly Report; Up 4.5% YOY

U.S. retail sales grew slightly with a 0.3% increase in October after averaging 1.4% monthly increases during each of the preceding three months. While the pace of growth has slowed, October’s $553.3 billion total retail sales figure marks the sixth consecutive month of increase. And retail sales are up 4.5% YOY as spending at retailers has bounced back more quickly than most economic indicators.

The monthly report from the Census Bureau, however, shows divergent trends across retailer categories as many consumers have not returned to pre-pandemic shopping patterns. Spending at restaurants and gasoline stations remains approximately down 14.0% YOY, and clothing stores sales are down 12.6% YOY.

In contrast, online retailers continue to outperform, and e-commerce spending has accelerated over the past several months. This trend could have lasting implications for consumer trends. Sales at online-only retailers are up 29.1% YOY and accounted for nearly one out of every six dollars spent at retailers last month. And several traditional retailers, such as Target and Walmart, have separately reported recent surges in spending on online platforms.

Looking ahead, retailers may see a more modest end-of-the-year boost from the holiday shopping season as many consumers remain cautious about their financial situation, especially those at the lower end of the income spectrum. The National Retail Federation’s annual survey found shoppers plan to spend 4.9% ($51) less during the holidays compared to last year. A separate survey by Fortune found 21% of people earning below $25,000 plan to curtail holiday spending, compared to 7% of those earning more than $150,000.

Monthly Nonstore (Online) Retail Sales


Homebuilding Activity Continues to Show Strength

New residential construction continued its months-long surge in October as privately owned housing starts rose 4.9% compared to the month prior. Single-family home starts led the way with a 6.4% increase, while multifamily starts were unchanged for the second consecutive month. At the same time, the National Association of Homebuilders (NAHB) reports homebuilder sentiment reached an all-time high for the third consecutive month.

The strong construction activity has provided lift for wages in the sector as homebuilders have sought to bring on new workers in order to ramp up production capacity and bring homes to market more quickly. The average hourly wage for construction workers has steadily climbed during 2020 and is up 2.8% YOY.

The inventory of homes on the market is equivalent to 3.6 months of supply, which is approximately 1.7 months lower than a year ago. And the NAHB reports that limited lot and material availability are holding back some builders. The average price for a new single-family home has jumped $10,000 over the past year to $327,000, and prices are likely to see upward pressure due to supply constraints.

A key question for housing revolves around the depth of demand for homes after many renters already transitioned to homeownership earlier this year. The homeownership rate has surged 2.3 percentage points this year to 67.2%, well above historic trendlines and approaching levels not seen since the Global Financial Crisis.


Industrial Sector Improving but Still below Pre-Pandemic Levels

U.S. industrial production bounced back from a small decline in September to increase 1.1% during October, according to the latest data from the Federal Reserve. October’s gains were broad-based as each of the major market groups—final goods, nonindustrial supplies, and materials—saw an uptick in activity.

Despite the gains, the industrial sector continues to see slack activity levels as overall output is down 5.3% YOY. Capacity utilization stands at 72.8%, which is 7.0 percentage points below the long-run average. However, utilization has increased 8.6 percentage points since this year’s low registered in April.

From an employment perspective, some sectors of the industrial economy have experienced more disruption than others. Since February, both utilities and manufacturing have experienced smaller declines in job levels compared to the overall economy. The percentage decrease in mining and logging jobs, however, is nearly twice the drop in total nonfarm payrolls. The sector includes oil and gas extraction, which has experienced the dual shocks of lower demand due to the pandemic and a global drop in energy prices.

Change in Employment by Industrial Sector Since February

 

Disclosures and Disclaimers
This is a general analysis of the real estate market prepared by Bridge Investment Group LLC (“Bridge”) and is not related to any specific products or services of Bridge or any affiliate. Sources for statistics and other factual data included herein are maintained by Bridge Research. Such data has not been verified by Bridge and we can give no assurance that it is accurate or complete. Statements contained herein that are nonfactual constitute opinions of Bridge, which are subject to change. Financial projections contained herein are estimates only and are based on assumptions, including assumptions regarding future rent growth, the availability and cost of financing, changes in market capitalization rates, and various micro- and macro-economic trends. No assurance can be given that either the projections or the assumptions will prove to be accurate. Investment in real estate involves substantial risk of loss.
This analysis contains various forward-looking statements that are not historical in nature. You are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this presentation. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and we cannot guarantee future results or the successful implementation of the strategies discussed in this presentation. We are under no duty to update any of the forward-looking statements after the date of this presentation to conform these statements to actual results. Certain information contained herein has been obtained from published sources, agencies of the U.S. government and from third-parties, including without limitation, market forecasts, market research, publicly available information and industry publications. Although such information is believed to be reliable for the purposes used herein, Bridge does not assume any responsibility for the accuracy or completeness of such information. Similarly, forecasts or market research, while believed to be reliable, have not been independently verified and Bridge does not make any representation as to the accuracy or completeness of such information. All information is provided on an “as is” basis only. By using this information, the reader agrees that Bridge shall not have any liability for the accuracy of the information contained herein, for delays or omissions therein, or for any results based on your use of the information which are not consistent with your objectives. Without limiting the foregoing disclaimers, the information provided herein is not guaranteed to be accurate or complete, nor does Bridge take responsibility for it. The information contained herein has not been audited and Bridge does not guarantee its suitability for any purpose. All information is subject to change and/or withdrawal at any time without notice. Certain information included herein may refer to published indices. Indices that purport to present performance of certain markets or the performance of certain asset classes or asset managers may actually present performance that materially differs from the overall performance of such markets, asset classes or asset managers.
Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. Any research in this document has been procured and may have been acted on by Bridge for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of Bridge or any of its affiliates and no assurances are made as to their accuracy.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any Bridge funds and has not been prepared in connection with any such offer.
Copyright 2020, Bridge Investment Group LLC. “Bridge Investment Group” and certain logos contained herein are trademarks owned by Bridge.