Dbvirago - stock.adobe.comA key measure of U.S. consumer confidence edged upward in March as consumers showed concerns about the health of the job market and expected inflation to remain high. The Conference Board reported that its Consumer Confidence Index rose to 104.2 from an upwardly revised 103.4 in February.
“Driven by an uptick in expectations, consumer confidence improved somewhat in March but remains below the average level seen in 2022 (104.5). The gain reflects an improved outlook for consumers under 55 years of age and for households earning $50,000 and over,” Ataman Ozyildirim, senior director, economics at The Conference Board, stated in a press release.
“While consumers feel a bit more confident about what’s ahead, they are slightly less optimistic about the current landscape,” Ozyildirim added. “The share of consumers saying jobs are ‘plentiful’ fell, while the share of those saying jobs are ‘not so plentiful’ rose. The latest results also reveal that their expectations of inflation over the next 12 months remain elevated — at 6.3%. Overall purchasing plans for appliances continued to soften, while automobile purchases saw a slight increase.”
Doubletreestudio - stock.adobe.comMeanwhile, a separate indicator of consumer sentiment fell in March. The University of Michigan reported that its Consumer Sentiment Index dropped to 62 from 67 in February.
“Consumer sentiment fell for the first time in four months, dropping about 8% below February but remaining 4% above a year ago,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. March’s “turmoil in the banking sector had limited impact on consumer sentiment, which was already exhibiting downward momentum prior to the collapse of Silicon Valley Bank. Overall, our data revealed multiple signs that consumers increasingly expect a recession ahead. While sentiment fell across all demographic groups, the declines were sharpest for lower-income, less-educated and younger consumers, as well as consumers with the top tercile of stock holdings. All five index components declined this month, led by a notably sharp weakening in one-year business conditions.”
The U.S. Department of Commerce reported that consumer spending rose by a mild 0.2% in February. That was a sharp drop from the upwardly revised 2% figure for January. Personal income rose 0.3%.
Deemerwha studio - stock.adobe.com“The economy looks strong today, but the outlook is still in doubt as banks may pull back on the credit they provide to help the economy grow,” Christopher Rupkey, chief economist at FWDBonds, told Reuters.
Inflation rose in February. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy categories, rose 0.3%. The so-called core PCE price index was up 4.6% on a year-over-year basis. The PCE index is the Federal Reserve’s preferred inflation gauge.
The Conference Board reported that its Leading Economic Index fell by 0.3% in February, to 110, after a decline of the same percentage in January.
Momius - stock.adobe.com“The LEI for the U.S. fell again in February, marking its 11th consecutive monthly decline,” Justyna Zabinska-LaMonica, senior manager, business cycle indicators, at The Conference Board, stated in a press release. “Negative or flat contributions from eight of the index’s 10 components more than offset improving stock prices and a better-than-expected reading for residential building permits. While the rate of month-over-month declines in the LEI have moderated in recent months, the Leading Economic Index still points to risk of recession in the U.S. economy. The most recent financial turmoil in the U.S. banking sector is not reflected in the LEI data but could have a negative impact on the outlook if it persists. Overall, The Conference Board forecasts rising interest rates paired with declining consumer spending will most likely push the U.S. economy into recession in the near term.”
The mood at the nation’s small businesses improved slightly in February. The National Federation of Independent Business reported that its Small Business Optimism Index rose 0.6 points, to 90.9, but remained well below the 49-year average of 98.
“Small-business owners remain doubtful that business conditions will get better in the coming months,” NFIB chief economist Bill Dunkelberg stated in a press release. “They continue to struggle with historic inflation and labor shortages that are holding back growth. Despite their economic challenges, owners are working hard to create new jobs to strengthen the economy and their firms.”
Twenty-eight percent of member business owners said inflation was the top problem in operating their business. Forty-seven percent of owners reported job openings that were hard to fill, a figure that the NFIB called historically high.
A net 46% of owners, seasonally adjusted, reported raising pay in February.
Confidence among the nation’s home builders climbed in March. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index rose two points, to 44.
“Even as builders continue to deal with stubbornly high construction costs and material-supply-chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new-home market due to a shortage of existing inventory,” NAHB chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., stated in a press release. “But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook.”
NAHB chief economist Robert Dietz added: “While financial system stress has recently reduced long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for prospective home buyers. For example, 40% of builders in our March HMI survey currently cite lot availability as poor. And a follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction loans for builders across the nation. When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability.”
The HMI component index that measures current sales conditions rose two points, to 49; the index that measures the traffic of prospective buyers rose three points, to 31; and the index that gauges sales expectations in the next six months fell by one point, to 47.
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 1.1% in February, to a seasonally adjusted annual rate of 640,000.
“Builders continue to face challenges in terms of higher interest rates, elevated construction costs and access to critical materials, like electrical transformers,” Huey stated in a press release. “Nonetheless, the lack of existing-home inventory means demand for new homes will rise as interest rates decline over the coming quarters.”
The median sales price was $438,200, up 2.5% from the same month a year earlier.
Existing-home sales soared in February, ending 12 months of decline. The National Association of Realtors reported that sales rose 14.5% from January to a seasonally adjusted annual rate of 4.58 million.
“Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines,” NAR chief economist Lawrence Yun stated in a press release. “Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs.”
The NAR also reported that the median existing-home price was $363,000, a decline of 0.2% from the same month a year earlier. That development ends a streak of 131 consecutive months of year-over-year increases, which the NAR says was the longest streak on record.
This article was originally published in the May 2023 issue.
