Morning Report: Tepid retail sales

Vital Statistics:

Stocks are lower after a weak retail sales report. Bonds and MBS are down.

Retail Sales rose 0.4% MOM in April, according to Census. Sales rose 1.6% on a YOY basis, however these numbers don’t take into account price changes, so on an inflation-adjusted basis retail sales are down. March’s numbers were revised upward slightly.

If you strip out autos and gas, retail sales rose 0.6% MOM. We saw big decreases in electronics, furniture and gasoline. Food and drinking establishments saw big gains.

Separately, the Home Despot reported a big miss on the top line and guided for lower comparable sales for the rest of the year. Falling lumber prices is playing a part here, although it appears that homeowners are putting bigger remodeling projects on the back burner. Chief Financial Officer Richard McPhail told CNBC “The state of the homeowner is that they’re very healthy,” he said. “They have healthy balance sheets. They have healthy incomes. But I do think — and our professional customers tell us they hear this from their customers — there is that shift, even if it’s temporary from larger projects into smaller ones.”

Homebuilder sentiment improved in May according to the NAHB. After dropping at the end of 2022, sentiment is improving. Traffic remains low, and lumber prices continue to work their way lower.

Industrial Production rose 0.5% in April, according to the Fed. February and March were revised lower. Manufacturing production rose 1% and capacity utilization fell to 79.7%. Overall, it looks like manufacturing is sluggish. This is despite a sizeable drop in the US dollar over the past 6 months.

The FHFA is requesting input on G-fees. “Through this RFI, FHFA seeks input on how to ensure the pricing framework adequately protects the Enterprises and taxpayers against potential future losses, supports affordable, sustainable housing and first-time homebuyers, and fosters liquidity in the secondary mortgage market,” said Director Sandra L. Thompson. “We are committed to being transparent and to considering views from a diverse set of stakeholders and market participants.”

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