A new government study on the strength of the US economy is a mixed bag of news. The report was introduced recently and found that November retail sales rose 1.2%. This is obviously good news for retailers anxious about the upcoming buying season. Some other good news is despite some slow down in the national housing market, housing related items, such as furniture and building materials, increased in sales in November.
In addition to the rise in retail sales, wholesale prices increased in the month of November by 3.2%, the highest monthly increase since 1973. However, the largest portion of this increase appears to be in energy pricing. Adjusted for the rise in energy, the monthly increase is the largest in two years.
The new numbers, along with the steadier housing numbers mentioned in the "House Price Index Report" released last month, indicate that the Federal Reserve is following the right track. Some had been concerned with the Fed's conservative stance on keeping inflation in check, despite the lack of evidence of inflationary increases. However, November's wholesale price index indicates that the Fed's concern over the possibility of inflation is warranted.
For an explanation of the effect of the new data on the lending industry, I spoke with local banker, Ralph Barber, Jr., Senior Vice President of First Security National Bank. The bank has four locations in the Atlanta region, one being located at Vickery Village, an award winning mixed use project in Forsyth County.
Historically, Mr. Barber's concentration has been on residential construction and development. However, about nine months ago, Ralph undertook a shift towards commercial lending because of the imbalance of housing supply and demand and slower absorption rates. His focus on commercial has been geared towards owner occupied buildings; and not, speculative buildings.
In reflecting on the housing market corrections of late, Mr. Barber states, "the guys that differentiate themselves are the ones making the money." Thus, he still looks for opportunities to provide financing on niche residential projects that provide something unique for the homebuyer.
He sees the inflation increase from the wholesale price index as a drain on consumer confidence. While it may have some effect on lenders, the biggest effect is on the borrower's confidence in the market. This may affect consumer retail spending at some point. However, November's retail sales numbers have countered this traditional wisdom.
Overall, he feels positive about the strength of the real estate market and considers the current market adjustments a normal part of the real estate cycle. He states, "This is a self cleansing market." Mr. Barber further indicates that, "the small guys and those highly leveraged" will make way for those who are more financial secure and fiscally conservative.