Retail sales, industrial production, and housing starts and permits fell in late 2022, a sign the goods side of the economy was contracting at the turn of the year.
Retail sales fell 1.1% in December, worse than the consensus forecast for a 0.8% decline; November was revised down to a 1.0% decline from a 0.6% decline. Motor vehicle and parts dealer sales fell 1.2% as seasonally-adjusted auto sales fell to 13.3 million annualized from 14.1 million in November. Non-store retailer sales, mostly e-commerce, fell 1.1%. Spending on food services fell 0.9%, implying a real decline of over 1% since the price of food away from home rose 0.4% in the December CPI report.
Industrial production fell by 0.7% in December, following a 0.6% decline in the previous month. In Q4 ’22, industrial production contracted by 1.7% annualized. Manufacturing, which accounts for roughly 75% of industrial production, fell by 1.3% last month after a 1.1% decline in November, revised from a 0.6% decline. Mining output fell 0.9% in December, while utilities output jumped 3.8%. Capacity utilization again fell sharply and at 78.8% was below its long-term average of 79.6% for a second consecutive month. Sharp contractions in new orders from domestic and foreign clients in manufacturing PMI surveys point to further weakness in industrial production in early 2023.
Building permits fell 1.6% in December to a seasonally adjusted annualized rate (SAAR) of 1.330 million and were down nearly 30% from March, when the Federal Reserve began raising rates. Housing starts fell 1.4% last month to a SAAR of 1.382 million and were down by a quarter from their peak in April. National average rates for a 30-year fixed mortgage have pulled back by nearly a percentage point from their peak above 7% in October, but are still up three percentage points over the last year; housing will be a headwind to the economy in 2023.
The Producer Price Index (PPI) for final demand fell 0.5% in December, well below consensus forecasts for a decrease of 0.1%. On a year-ago basis, PPI final demand eased further to 6.2% from 7.3% in November. Core PPI also declined on an annual basis to 4.6% from 4.9%. The decline in PPI final demand was due to a sharp decline in goods prices, particularly gasoline prices, which fell 13.4%. PPI final demand for services edged up 0.1%. Going forward, the reopening of the Chinese economy following the end of zero COVID policies could reverse some of the sharp declines in commodity prices in late 2022 and revive upward pressure on producer prices in the coming months.
Bill Adams is senior vice pfresident and chief economist at Comerica. Waran Bhatruethan is a vice president and senior economist at Comerica.
