A key measure of U.S. consumer confidence rose in December as the economy added 223,000 jobs, the smallest gain in two years. The Conference Board reported that its Consumer Confidence Index rose to 108.3 from 101.4 in November.
“Consumer confidence bounced back in December, reversing consecutive declines in October and November to reach its highest level since April 2022,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “The Present Situation and Expectations indexes improved due to consumers’ more favorable view regarding the economy and jobs. Inflation expectations retreated in December to their lowest level since September 2021, with recent declines in gas prices a major impetus. Vacation intentions improved, but plans to purchase homes and big-ticket appliances cooled further. This shift in consumers’ preference from big-ticket items to services will continue in 2023, as will headwinds from inflation and interest rate hikes.”
A separate indicator of consumer sentiment also rose in December. The University of Michigan reported that its Consumer Sentiment Index climbed from 56.8 in November to 59.7 in December. “Consumer sentiment confirmed the preliminary reading earlier [in December], rising 5% above November,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “Sentiment remains relatively downbeat at 15% below a year ago, but consumers’ extremely negative attitudes have softened on the basis of easing pressures from inflation. One-year business conditions surged 25%, and the long-term outlook improved a more modest but still sizable 9%. Still, both measures are well below 2021 readings. Assessments of personal finances, both current and future, are essentially unchanged from November.”
The U.S. Department of Labor reported that the unemployment rate was 3.5% in December. The leisure and hospitality sector added 67,000 jobs, health care employment increased by 55,000, and 28,000 jobs were added in the construction industry.
“The labor market remains resilient but is losing pep, and worker shortages remain intense,” Sal Guatieri, a senior economist at BMO Capital Markets, told Reuters. “While wage growth has moderated, it’s still far from consistent with price stability. Don’t look for the Fed to ratchet down its hawkish talk or slow the pace of rate hikes on Feb. 1.”
The economy added 4.5 million jobs in all of 2022. Job gains averaged 375,000 a month. The federal government reported that average hourly earnings rose by 9 cents, or 0.3%, to $32.82 during the month, and earnings rose by 4.6% during the 12-month period that ended in December.
The U.S. Department of Commerce reported that consumer spending rose just 0.1% in November after rising 0.9% the previous month. “The economy is moving in the right direction from the Fed’s perspective, but not quickly enough,” Gus Faucher, chief economist at PNC Financial, told Reuters.
Inflation was up in November, but only slightly. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy components, rose 0.2%. The core PCE index rose 4.7% on a year-over-year basis in November. That was the smallest increase since October 2021. The PCE is the Federal Reserve’s preferred inflation gauge.
The Conference Board reported that its Leading Economic Index fell 1% in November, to 113.5, after a decline of 0.9% in October.
“The U.S. LEI fell sharply in November, continuing the slide it’s been on for most of 2022 after peaking in February,” Ataman Ozyildirim, senior director, economics, at The Conference Board, stated in a press release. “Only stock prices contributed positively to the U.S. LEI in November. Labor-market, manufacturing and housing indicators all weakened, reflecting serious headwinds to economic growth. Interest rate spread and manufacturing new orders components were essentially unchanged in November, confirming a lack of economic growth momentum in the near term.”
The mood at the nation’s small businesses improved slightly in November. The National Federation of Independent Business reported that its Small Business Optimism Index rose 0.6 points, to 91.9. That marked the 11th consecutive month the index has been below the 49-year average of 98.
“Going into the holiday season, small-business owners are seeing a slight ease in inflation pressures, but prices remain high,” NFIB chief economist Bill Dunkelberg stated in a mid-December press release. “The small-business economy is recovering as owners manage an ongoing labor shortage, supply-chain disruptions and historic inflation.”
Thirty-two percent of member business owners said inflation was their single most important problem in managing their business in November. Forty-four percent of member owners said they had job openings that were hard to fill. That was down 2% from October, but the NFIB called the figure historically high and not typical of a recession period. A net 40% of owners, seasonally adjusted, reported raising pay in November.
Confidence among the nation’s home builders continued to decline in December. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index dropped two points, to 31, falling for the 12th consecutive month. It was the lowest reading for the index since mid-2012, with the exception of the start of the Covid-19 pandemic in spring 2020.
“In this high-inflation, high-mortgage-rate environment, builders are struggling to keep housing affordable for home buyers,” NAHB chairman Jerry Konter, a home builder and developer from Savannah, Ga., stated in a press release. “Our latest survey shows 62% of builders are using incentives to bolster sales, including providing mortgage-rate buy-downs, paying points for buyers and offering price reductions. But with construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices. Only 35% of builders reduced home prices in December, edging down from 36% in November. The average price reduction was 8%, up from 5% or 6% earlier in the year.”
NAHB chief economist Robert Dietz added: “The silver lining in this HMI report is that it recorded the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment. Mortgage rates are down from above 7% in recent weeks to about 6.3% [on Dec. 19], and for the first time since April, builders registered an increase in future sales expectations.”
The HMI component indexes were mixed. The index that measures current sales conditions fell three points, to 36; the gauge that measures sales expectations in the next six months rose four points, to 35; and the index that measures the traffic of prospective buyers was unchanged, at 20. 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 5.8% in November, to a seasonally adjusted annual rate of 640,000.
“Declining mortgage rates during the second half of November, combined with builder sales incentives, lifted the pace of new-home sales for the month,” Konter said. “However, due to higher construction costs and ongoing supply-chain issues, the median price of a newly built single-family home in November was $471,200, 9.5% higher than a year ago.”
Existing-home sales fell for the 10th consecutive month in November. The National Association of Realtors reported that sales dropped 7.7%, to a seasonally adjusted annual rate of 4.09 million.
“In essence, the residential real-estate market was frozen in November, resembling the sales activity seen during the Covid-19 economic lock-downs in 2020,” NAR chief economist Lawrence Yun stated in a press release. “The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows.”
The NAR reported that the median existing-home price was $370,700, an increase of 3.5% from the same month a year earlier. The gain marks 129 consecutive months of year-over-year increases, which NAR says is the longest-running streak on record.
This article was originally published in the February 2023 issue.
