Ink Drop - stock.adobe.comA key measure of U.S. consumer confidence declined significantly in August for the first time in three months. The economy added 187,000 jobs, which topped estimates, but the unemployment rate rose, wage growth moderated, and The Conference Board reported that its Consumer Confidence Index fell to 106.1 from a downwardly revised 114 in July.
“Consumer confidence fell in August, erasing back-to-back increases in June and July,” Dana Peterson, chief economist at The Conference Board, stated in a press release. “August’s disappointing headline number reflected dips in both the current conditions and expectations indexes. Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular.
“The pullback in consumer confidence was evident across all age groups — and most notable among consumers with household incomes of $100,000 or more, as well as those earning less than $50,000,” Peterson added. “Confidence held relatively steady for consumers with incomes between $50,000 and $99,999.”
A separate indicator of consumer sentiment also dropped in August. The University of Michigan reported that its Consumer Sentiment Index fell from 71.6 in July to 69.5. “After rising sharply for the past several months, consumer sentiment moved sideways in August with a small decline that is not statistically different from July,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “Sentiment reached its second-highest reading in 21 months and is now about 39% above the all-time historic low reached in June of 2022.
Andy Dean - stock.adobe.com“While buying conditions for durables and expectations over living conditions both improved, the long-run economic outlook fell back about 12% [in August] but remains higher than just two months ago,” Hsu added. “Consumers weighed a combination of positive and negative factors in the economy, which led to differing offsetting trends across demographic groups. Consumers perceive that the rapid improvements in the economy from the past three months have moderated, particularly with inflation, and they are tentative about the outlook ahead.”
The U.S. Department of Labor reported that the unemployment rate was 3.8% in August, up from 3.5% in July and the highest since February 2022. The health-care sector added 71,000 jobs, the leisure and hospitality category added 40,000, social assistance increased by 26,000, and construction added 22,000.
“The U.S. labor market continues to come back to Earth but from a very high peak,” Nick Bunker, head of economic research at the Indeed Hiring Lab, told CNBC. “The labor market was sprinting last year, and now it’s getting closer to a marathon pace. A slowdown is welcome; it’s the only way to go the distance.”
Julia Pollak, chief economist at ZipRecruiter, told The Washington Post: “The labor market is back to its normal pre-pandemic climate. The question going forward is whether this will be the sustainable long-term condition of the labor market or whether we will cross below the prepandemic level to something slower and cooler.”
Blue Planet Studio - stock.adobe.comThe government reported that average hourly earnings rose in August by eight cents, or 0.2%, to $33.82. During the 12-month period that ended in August, earnings rose by 4.3%. Earnings rose 0.4% in July.
The Labor Department downwardly revised its job totals for June and July. The June figure was corrected to 105,000, down by 80,000, and the July figure was revised to 157,000, down by 30,000.
The U.S. Department of Commerce reported that consumer spending rose 0.8% in July, the most in six months, further diminishing the odds for a recession despite high interest rates. “Americans keep spending,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, told Reuters. “The ‘soft landing’ view still holds, but there are some warning signs coming from the consumer as the savings rate continues to tick down.”
Inflation rose in July, but in line with estimates. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy categories, climbed just 0.2%, matching the previous month’s increase. The so-called core PCE Price Index rose 4.2% on a year-over-year basis in July. The PCE is the Federal Reserve’s preferred inflation gauge.
The Conference Board reported that its Leading Economic Index declined by 0.4% in July, to 105.8, after a drop of 0.7% in June. “The U.S. LEI — which tracks where the economy is heading — fell for the 16th consecutive month in July, signaling the outlook remains highly uncertain,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release. “On the other hand, the coincident index — which tracks where economic activity stands right now — has continued to grow slowly but inconsistently, with three of the past six months not changing and the rest increasing.
Who is Danny - stock.adobe.com“As such, the CEI is signaling that we are currently still in a favorable growth environment,” Zabinska-La Monica added. “However, in July, weak new orders, high interest rates, a dip in consumer perceptions of the outlook for business conditions, and decreasing hours worked in manufacturing fueled the leading indicator’s 0.4% decline. The leading index continues to suggest that economic activity is likely to decelerate and descend into mild contraction in the months ahead. The Conference Board now forecasts a short and shallow recession in the Q4 2023 to Q1 2024 timespan.”
The mood around the nation’s small businesses improved slightly in July. The National Federation of Independent Business reported that its Small Business Optimism Index rose 0.9 points, to 91.9. The result marked the 19th consecutive month that the index has been below its 49-year average of 98.
“With small business owners’ views about future sales growth and business conditions dismal, owners want to hire and make money now from solid consumer spending,” NFIB chief economist Bill Dunkelberg stated in a press release. “Inflation has eased slightly on Main Street, but difficulty hiring remains a top business concern.”
Twenty-three percent of business owners said labor quality is a top business problem, and 21% reported that inflation was their most serious problem. Forty-two percent of owners reported job openings that were hard to fill. That figure was unchanged from June, but the federation said it is historically high. A net 38% of owners, seasonally adjusted, said they increased pay in July.
Confidence among the nation’s home builders declined in August. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index fell six points, to 50, the first decline after seven consecutive months of gains.
“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” NAHB chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., stated in a press release. “But while this latest confidence reading is a reminder that housing affordability is an ongoing challenge, demand for new construction continues to be supported by a lack of resale inventory, as many homeowners elect to stay put because they are locked in at a low mortgage rate.”
NAHB chief economist Robert Dietz added: “Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%. The best way to bring down housing inflation and ease the housing affordability crisis is to enact policies at all levels of government that will allow builders to construct more homes to address a nationwide shortfall of approximately 1.5 million housing units.”
All three major HMI component indexes declined in August. The index that gauges current sales conditions fell five points, to 57; the index that charts sales expectations in the next six months dropped four points, to 55; and the index that measures the traffic of prospective buyers dipped six points, to 34. Any number above 50 indicates that more builders view conditions as good rather than poor.
The Commerce Department reported that sales of new homes rose 4.4% in July, to a seasonally adjusted annual rate of 714,000.
“New-home sales were solid in July because of an ongoing housing deficit in the U.S. and a lack of resales stemming from many homeowners electing to stay put to preserve their low mortgage rates,” Huey, of the NAHB, stated in a press release. “But builders are still confronting many challenges, including rising mortgage rates, supply-chain issues for electrical transformers, a dearth of skilled workers and elevated construction costs.”
Dietz added: “Despite this monthly uptick, new-home sales will likely weaken in August as higher interest rates price out prospective buyers. Mortgage rates increased from 6.7% at the start of July to above 7% in August.”
The median price for a new home was $436,700, down about 9% from a year earlier. The NAHB reported that prices have declined because of builder incentives and a shift toward the construction of slightly smaller homes.
Existing-home sales fell in July. The National Association of Realtors reported that sales dropped 2.2%, to a seasonally adjusted annual rate of 4.07 million. “Two factors are driving current sales activity: inventory availability and mortgage rates,” NAR chief economist Lawrence Yun stated in a press release. “Unfortunately, both have been unfavorable to buyers.”
The median existing-home price was $406,700 in July, an increase of 1.9% from a year earlier. “Most homeowners continue to enjoy large wealth gains from recent years, with little concern about home price declines,” Yun said. “However, many renters are concerned, as they’re facing growing affordability challenges because of high interest rates.”
This article was originally published in the October 2023 issue.
