Tom Mc Nemar - Stock.adobe.comA key measure of U.S. consumer confidence declined in February for the second month in a row as inflation continued to weigh on Americans’ minds. The Conference Board reported that its Consumer Confidence Index fell to 102.9 from a downwardly revised 106 in January.
“Consumer confidence declined again in February. The decrease reflected large drops in confidence for households aged 35 to 54 and for households earning $35,000 or more,” Ataman Ozyildirim, senior director, economics, at The Conference Board, stated in a press release.
“While consumers’ view of current business conditions worsened in February, the Present Situation Index still ticked up slightly based on a more favorable view of the availability of jobs,” Ozyildirim added. “In fact, the proportion of consumers saying jobs are ‘plentiful’ climbed to 52% — back to levels seen in the spring of last year. However, the outlook appears considerably more pessimistic when looking ahead. Expectations for where jobs, incomes and business conditions are headed over the next six months all fell sharply in February.”
Brian Jackson - Stock.adobe.comMeanwhile, a separate indicator of consumer sentiment rose in February. The University of Michigan reported that its Consumer Sentiment Index climbed to 67 from 64.9 in January.
“Consumer sentiment confirmed the preliminary February reading, rising a modest 3% above January,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “After lifting for the third consecutive month, sentiment is now 17 index points above the all-time low from June 2022 but remains almost 20 points below its historical average. Consumers with larger stock holdings exhibited particularly large increases in sentiment. Overall, February’s reading was supported by a 12% improvement in the short-run economic outlook, while all other index components were essentially unchanged.
“Year-ahead inflation expectations rebounded to 4.1% [in February], from 3.9% in January and 4.4 percent in December,” Hsu added. “Consumers continued to exhibit considerable uncertainty over short-run inflation, and thus their expectations may be unstable in the months to come.”
Blue Planet Studio - Stock.adobe.comThe U.S. Department of Commerce reported that consumer spending rose 1.8% in January, the highest increase in nearly two years. Americans’ wages and salaries rose 0.9%.
“Clearly, tighter monetary policy has yet to fully impact consumers and shows that the Fed has more work to do in slowing down aggregate demand,” Jeffrey Roach, chief economist at LPL Financial in Charlotte, N.C., told Reuters. “This report all but ensures the Fed will continue on its rate-hiking campaign for a lot longer than markets anticipated just a few weeks ago.”
Inflation rose in January. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy categories, rose 0.6%. The so-called core PCE price index was up 4.7% from the same month a year earlier. The PCE is the Federal Reserve’s preferred inflation gauge.
Negro Elkha - Stock.adobe.comThe Conference Board reported that its Leading Economic Index fell by 0.3% in January, to 110.3, after a decline of 0.8% in December.
“The U.S. LEI remained on a downward trajectory, but its rate of decline moderated slightly in January,” Ozyildirim stated in a press release. “Among the leading indicators, deteriorating manufacturing new orders, consumers’ expectations of business conditions, and credit conditions more than offset strengths in labor markets and stock prices to drive the index lower in the month. The contribution of the yield spread component of the LEI also turned negative in the last two months, which is often a signal of a recession to come.
“While the LEI continues to signal recession in the near term, indicators related to the labor market — including employment and personal income — remain robust so far,” Ozyildirim added. “Nonetheless, The Conference Board still expects high inflation, rising interest rates and contracting consumer spending to tip the U.S. economy into recession in 2023.”
Adragan - Stock.adobe.comThe mood at the nation’s small businesses brightened slightly in January. The National Federation of Independent Business reported that its Small Business Optimism Index rose 0.5 points, to 90.3, remaining well below the 49-year average of 98.
“While inflation is starting to ease for small businesses, owners remain cynical about future business conditions,” NFIB chief economist Bill Dunkelberg stated in a press release. “Owners have a negative outlook on the small business economy but continue to try to fill open positions and return to a full staff to improve productivity.”
Twenty-six percent of member business owners said inflation was their top problem in operating their business. Forty-five percent of owners reported job openings that were hard to fill, up 4% from December.
A net 46% of owners, seasonally adjusted, reported raising pay in January.
Confidence among the nation’s home builders rose in February. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index rose seven points, to 42.
“With the largest monthly increase for builder sentiment since June 2013, excluding the period immediately after the onset of the pandemic, the HMI indicates that incremental gains for housing affordability have the ability to price in buyers to the market,” NAHB chairwoman Alicia Huey, a custom home builder and developer from Birmingham, Ala., stated in a press release. “The nation continues to face a sizable housing shortage that can only be closed by building more affordable, attainable housing. However, the two monthly gains for the HMI at the start of 2023 match the cautious optimism noted by the large number of builders at the recent International Builders’ Show in Las Vegas, who reported a better start to the year than expected last fall.”
NAHB chief economist Robert Dietz added: “While the HMI remains below the break-even level of 50, the increase from 31 to 42 from December to February is a positive sign for the market. Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle. And while we expect ongoing volatility for mortgage rates and housing costs, the building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024.”
All three HMI component indexes posted gains for the second month in a row. The index that measures current sales conditions rose six points, to 46; the gauge that tracks sales expectations in the next six months climbed 11 points, to 48; and the index that measures the traffic of prospective buyers rose six points, to 29.
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 7.2%, to a seasonally adjusted annual rate of 670,000 in January.
“The latest HMI survey shows 57% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions,” Huey stated in a press release. “Buyer incentives, along with stabilizing mortgage rates during the month of January, increased the pace of new-home sales for the month. However, in a sign of current market weakness, sales are down 19.4% compared to a year ago.”
The median sales price in January was $427,500, down 8.2% from December.
Existing-home sales fell in January. The National Association of Realtors reported that sales fell 0.7% from December to a seasonally adjusted annual rate of 4 million.
“Home sales are bottoming out,” NAR chief economist Lawrence Yun stated in a press release. “Prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines.”
The NAR reported that the median existing-home price was $359,000 in January, an increase of 1.3% from the same month a year earlier. The trade group added that this marks 131 consecutive months of year-over-year increases, the longest-running streak on record.
This article was originally published in the April 2023 issue.
