Positive Signs for Appliances

The interest rate is an extremely important indicator for the appliance industry because of its significant impact on the housing market. Generally, a lower rate either encourages refinancing of mortgages, providing cash for home improvements, or it makes the monthly payment for a new mortgage lower, which tends to spur activity in the market. Either tends to lead to purchases of new appliances.

Housing Permits. There were 107,000 housing permits filed in August. In three of the last four months, permits were above 100,000. While the number of permits is still relatively low for the last four decades, the August level of permits was almost the highest since 2007. Compared with a year ago, housing permits increased 10.1%, which was the first month of growth since March. Given the time lag by which interest-rate changes lead changes in housing permits, it very well could be that the rate of growth in housing permits has bottomed and will accelerate for the next six to eight months.

Appliance Industrial Production. Despite the extended period of growth since May 2012, the actual level of appliance production is still at the bottom of the range from 1994 to 2007. That shows what a toll the popping of the housing bubble took on the industry.

In August, appliance production was down 1% from a year ago. That was the first time that appliance production contracted since November 2015. The trend for most of the last year was for weaker growth month over month. As a result, the annual rate of change in appliance production (see chart) has grown at a decelerating rate since March 2015. It’s possible that the rate of change will stabilize for a few months before it decelerates further. However, based on the leading indica- tors, accelerating growth in appliance production should return towards the second half of 2017.