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The U.S. economy continues to provide little source of optimism, only lessening degrees of pessimism. News last week that the U.S. Federal Reserve foresees the need to keep the stimulus flowing into the economy may have soothed markets but they hardly indicate the news is going to get any better. One figure that should give observers pause jumped out of Monday's June retail numbers, suggesting a warning about the sector that has been driving the U.S. economy: housing.
Overall retail sales were disappointing, rising just 0.4 per cent from May, well below economists' consensus expectations of a 0.7 per cent rise. Among the big disappointments was building materials, a key component in the housing market: sales fell by 2.2 per cent from the previous month and were a big drag on overall sales.
One month of statistics does not a trend make, but there have been some other points of concern about just how much room housing has left to run. Lumber futures have been surprisingly weak in the past four months, while some prominent economists, including David Rosenberg and Robert Shiller, have speculated that housing prices don't have much farther to rise. That has fed questions about just how real and sustained the housing rebound has been, or will be, in the United States. A lot of housing has reportedly been snapped up by hedge funds and institutional investors, not families, while first-time buyers have largely stayed on the sidelines. Also, the recent rise in mortgage rates led to a sharp drop in loan applications last month, according to the Mortgage Bankers Association in the U.S. .
Meanwhile, the June building products decline "could be a result of the recent run-up in mortgage rates, but we have to wait for more housing data to conclude that this is actually the case," Nomura Securities economist Leis Alexander said in a note. The data watch continues Wednesday with the release of housing starts and building permit numbers for June.
There are enough points of optimism not to write off housing just yet, including the fact that U.S. homebuilders are now more optimistic about the market than they've been in more than seven years. But continuing sluggish retail sales and other middling data begs the question, how much momentum lies ahead for the U.S. economy? Economists expect some pick up in the second half of this year and into 2014, but if the housing sector does indeed run out of steam, forecasters will have to sharpen their pencils again, and prick the outlook a bit.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights , and follow Sean on Twitter at @seansilcoff .
Sean Silcoff