The Independent Market Observer

Monday Update: Retail Sales Slow in August

Posted by Sam Millette

This entry was posted on Sep 21, 2020 11:45:44 AM Leave a comment

In his Monday Update, Commonwealth’s Sam Millette reports on mixed news for consumers and releases focused on housing sales and durable goods orders. Last week was packed with economic updates, with a focus on housing, consumer confidence and spending, and the results from the Fed’s September meeting. The news for consumers was mixed, with better-than-expected confidence in September helping to calm concerns about slower sales growth in August. This week will be less busy for economic updates, with reports primarily focused on housing sales and durable goods orders.

Last Week’s News

We started the week with Tuesday’s release of August’s industrial production report. Production rose by 0.4 percent during the month, a result below estimates for a 1 percent increase and down from an upwardly revised 3.5 percent increase in July. Manufacturing output also came in below expectations, rising by 1 percent against forecasts for 1.3 percent growth. This report marks the fourth straight month of increased production, boosted by factory reopenings and improved demand. Nonetheless, the pace of improvement has slowed notably from the record results we saw earlier in the summer. Industrial production remains below pre-pandemic levels, so this slowdown in August is worth monitoring as we head into the fall.

On Wednesday, the August retail sales report was released. Sales disappointed during the month, rising by 0.6 percent against calls for a 1 percent increase. July’s retail sales growth was also revised down from 1.2 percent to 0.9 percent. Core retail sales, which strip out the impact of volatile food and gas sales, increased by 0.7 percent in August, against calls for 0.9 percent growth. While the slowing growth in sales in August was disappointing, the overall level of retail sales now sits nearly 2 percent higher than pre-pandemic levels. Given the rebound in sales levels and the slowing tailwind from federal government stimulus, the slowdown in sales is understandable. Looking forward, this slowdown in spending will be closely monitored, given the importance of consumer spending on the overall economy.

Also on Wednesday, the National Association of Home Builders Housing Market Index for September was released. Home builder sentiment soared above expectations, rising to a new record high of 83 during the month, against forecasts to remain flat at 78. This strong result was largely driven by a surge in prospective home buyer foot traffic, with the subindex that measures foot traffic rising from 64 to 73. This increase in prospective home buyers has been driven in large part by low mortgage rates, which remain near all-time lows in September. The September highlights the impressive rebound we’ve seen for home builder confidence since the low point of the pandemic, when the index bottomed out at 30 in April.

The third major release on Wednesday was the FOMC rate decision from the Fed’s September meeting. As expected, the Fed voted to keep the federal funds rate unchanged at virtually zero. The forecasts released at this meeting showed that the vast majority of Fed officials do not expect to raise rates until 2023 at the earliest, due by concerns about low inflation and the significant stress facing the job market. Fed Chair Jerome Powell used his post-meeting press conference to advocate for additional fiscal stimulus from the federal government, as the central bank remains concerned about the headwinds for the economy created by the pandemic. Ultimately, this release largely confirmed economist and market expectations for continued support from the Fed throughout the crisis.

On Thursday, we returned to housing, with the release of August’s building permits and housing starts reports. Both measures of new home construction disappointed. During the month, starts fell by 5.1 percent against calls for a 0.6 percent decline, and permits dropped by 0.9 percent against forecasts for a 2 percent rise. As both permits and starts rose by 17.9 percent in July, this decline is notable but not concerning, especially when accounting for the construction slowdown in the South caused by hurricanes. Since hitting a pandemic-induced low in April, the pace of new home construction has improved markedly, driven by rising home builder sentiment, low mortgage rates, and limited supply. Looking forward, record high home builder confidence in September should support additional construction.

Thursday also saw the release of the initial jobless claims report for the week ending September 12. An additional 860,000 Americans filed initial unemployment claims during the week, a result above economist estimates for 850,000 initial filers but below the prior week’s 893,000. This report marks the lowest level of initial jobless claims in a week since early March, but claims are still high on a historical basis and above those made any week during the great financial crisis. Continuing unemployment claims, which are reported with a one-week lag to initial claims, were more encouraging. The report showed 12.628 million continuing unemployment claims during the week ending September 5, down from 13.544 million the week before and notably better than economist estimates for 13 million. Despite the better-than-expected result for continuing claims, the high overall level of both initial and continuing claims indicate that the labor market continues to face significant stress.

We finished the week with Friday’s release of the preliminary estimate of the University of Michigan consumer sentiment survey for September. This early look at consumer confidence came in better than expected, rising from 74.1 in August to 78.9 in September, against forecasts for a more moderate rise to 75. This release marks the second straight month with improving confidence, following a decline for the index in July caused by rising case counts. The result brought the index to its highest level since the pandemic hit, which is encouraging because improving confidence typically supports faster spending growth. While the improvement in September was certainly welcome, the index sits significantly below this year’s pre-pandemic high of 101 recorded in February. Getting back to pre-pandemic consumer confidence levels will take some time.

What to Look Forward To

On Tuesday, August’s existing home sales report will be released. Sales of existing homes are expected to rise by 2.4 percent, following a 24.7 percent surge in July. If estimates hold, existing home sales would be up more than 10 percent on a year-over-year basis compared with last August. The pace of existing home sales rebounded sharply once reopening efforts started, and sales reached their highest level since 2006 in July. This anticipated improvement in August would be another sign that the housing market remains strong, driven by continued low mortgage rates.

On Thursday, August’s new home sales report will be released. New home sales are expected to fall by 1.2 percent during the month, following a 13.9 percent increase in July. The strong result in July brought the pace of new home sales to its highest level since 2006, so the anticipated modest decline is not a major concern. As was the case with existing home sales, new home sales surged past pre-pandemic levels once reopening efforts began, highlighting the impressive strength of the housing market over the summer.

Thursday will also see the release of the weekly initial jobless claims report for the week ending September 19. Economists expect to see an additional 840,000 initial filers during the week, which would be an improvement from the 860,000 the week before. Despite the anticipated decline, initial claims would nonetheless come in significantly higher than normal if estimates hold. Over the past few weeks, initial unemployment claims have plateaued, which is a concerning development given the high overall level of claims. We’ll continue to monitor this weekly update until the level of claims returns closer to historically normal levels.

We’ll finish the week with Friday’s release of the preliminary durable goods orders report for August. Durable goods orders are expected to rise by 1.4 percent during the month, following a 11.4 percent surge in July. Much of the increase in July was due to volatile transportation orders, as core durable goods orders, which strip out transportation orders, rose by only 2.6 percent in July. Core orders are expected to go up by 1 percent in August, providing a good sign for continued business investment. Durable goods orders have almost recovered to pre-pandemic levels, and further improvements in August would be a signal that the recovery for business spending has been largely V-shaped.

That’s it for this week—thanks for reading and stay safe!

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®