PHOTO: IQONCEPT - STOCK.ADOBE.COMConsumer sentiment, as measured by the two major national surveys, brightened significantly in October, and a financial analyst who follows the marine industry believes the Federal Reserve’s campaign to lower interest rates will motivate boat shoppers to start buying.
The central bank reduced its benchmark lending rate 0.5%, to a range of 4.75% to 5%, in mid-September, and the Fed is expected to further reduce the rate by the end of the year, which would continue to push down the rates that households pay on credit cards and loans. “With the Fed starting to reduce interest rates, we are optimistic this will not only start to move buyers off the sidelines and reduce elevated channel inventories, but will motivate dealers to take on additional new-model-year inventory ahead of next year’s boating season (with lower carrying costs),” Eric Wold, a senior analyst at B Riley Securities, said in an industry update in late October.
“We believe Brunswick is well-positioned, given the combination of increased boating activity (parts and accessories sales) and OEMs ramping production (engine and Navico sales),” Wold adds. “However, we would also expect higher-end buyers to increase boat purchases on more confidence around the macro outlook, which should continue to help MarineMax outperform the industry recovery.”
Consumers surveyed by The Conference Board for its Consumer Confidence Index told the research group in October that they were more upbeat about business conditions, the labor market and their own family finances. The index rose sharply, adding 9 points — its biggest one-month gain in three-and-a-half years — to rise from 99.2 in September to 108.7 in October. “Consumer confidence recorded the strongest monthly gain since March 2021 but still did not break free of the narrow range that has prevailed over the past two years,” Dana M. Peterson, chief economist at The Conference Board, stated in a press release.
“In October’s reading, all five components of the index improved,” she continued. “Consumers’ assessments of current business conditions turned positive. Views on the current availability of jobs rebounded after several months of weakness, potentially reflecting better labor market data. Compared to last month, consumers were substantially more optimistic about future business conditions and remained positive about future income. Also, for the first time since July 2023, they showed some cautious optimism about future job availability.
“October’s increase in confidence was broad-based across all age groups and most income groups,” Peterson added. “In terms of age, confidence rose sharpest for consumers aged 35 to 54. On a six-month moving average basis, householders aged under 35 and those earning over $100,000 remained the most confident.
“The proportion of consumers anticipating a recession over the next 12 months dropped to its lowest level since the question was first asked in July 2022, as did the percentage of consumers believing the economy was already in recession,” she said. “Consumers’ assessments of their family’s current financial situation were unchanged, but optimism for the next six months reached a series high.” Peterson said the measures of consumers’ views about a recession and their family situation were not included in calculating the confidence index.
The University of Michigan said its Consumer Sentiment Index rose from 70.1 in September to 70.5 in October, reaching a six-month high. “Consumer sentiment lifted for the third consecutive month, inching up to its highest reading since April 2024,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “Sentiment is now more than 40% above the June 2022 trough.”
Taken a few weeks before the presidential election, the survey showed that consumers became more optimistic because rate cuts promise to make purchases that require financing easier to afford. “[October’s] increase [in confidence] was primarily due to modest improvements in buying conditions for durables, in part due to easing interest rates,” Hsu said. “Overall, the share of consumers expecting a Harris presidency fell from 63% [in September] to 57% in October. Sentiment of Republicans, who believe that a Trump presidency would be better for the economy, rose 8% on growing confidence that their preferred candidate would be the next president. In contrast, sentiment declined 1% for Democrats. As usual, independents remain in between, with a 4% gain in sentiment [in October].”
Hsu added that regardless of who is elected, a “sizable share of consumers will likely update their economic expectations based on the results of the election.”
The buying public showed no signs that it is pulling back in September. The Commerce Department said retail sales rose a solid 0.4% during the month. “Strong consumer spending in September suggests economic growth in the previous quarter was solidly above trend,” Jeffrey Roach, chief economist at LPL Financial, told Reuters. “Our baseline remains that the Fed will likely cut a quarter of a percent in both November and December.”
Inflation rose modestly in September. The Labor Department said the Consumer Price Index climbed 0.2%, seasonally adjusted, the same increase as in the prior two months. The gain put the annual rate of inflation at 2.4%. The Fed is trying to get inflation down to 2%. The so-called core CPI, which excludes volatile food and energy costs, rose 0.3%, which put the annual rate for that measure at 3.3%.
“Consumers might fixate on the firmness of inflation in categories like food, while the Fed might welcome the softer shelter reading finally starting to come through,” Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, told Reuters. “Either way, inflation has been normalizing. As such, the evolution of the Fed’s approach feels prudent.”
The Conference Board said its Leading Economic Index slipped 0.5% in September, to 99.7, after a decline of 0.3% in August. “Weakness in factory new orders continued to be a major drag on the U.S. LEI in September, as the global manufacturing slump persists,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release. “Additionally, the yield curve remained inverted, building permits declined, and consumers’ outlook for future business conditions was tepid. Gains among other LEI components were not significant enough to offset weakness among the four gauges mentioned above. Overall, the LEI continued to signal uncertainty for economic activity ahead and is consistent with The Conference Board’s expectation for moderate growth at the close of 2024 and into early 2025.”
The mood at the nation’s small businesses improved in September. The National Federation of Independent Business said its Small Business Optimism Index rose 0.3 points, to 91.5. The result, however, left the index below its historical average of 98 for the 33rd consecutive month. Inflation remained the main problem for member business owners, as 23% termed it their most significant issue.
“Small-business owners are feeling more uncertain than ever,” NFIB chief economist Bill Dunkelberg stated in a press release. “Uncertainty makes owners hesitant to invest in capital spending and inventory, especially as inflation and financing costs continue to put pressure on their bottom lines. Although some hope lies ahead in the holiday sales season, many Main Street owners are left questioning whether future business conditions will improve.”
Seventeen percent of members said labor quality was their top business problem, ranking just behind inflation. A seasonally adjusted 34% of owners reported job openings they could not fill. A net 32% of owners, also seasonally adjusted, reported raising pay during the month.
Confidence among the nation’s home builders edged higher in October. The National Association of Home Builders said its NAHB/Wells Fargo Housing Market Index climbed to 43, up from 41 in September. “While housing affordability remains low, builders are feeling more optimistic about 2025 market conditions,” NAHB chairman Carl Harris, a custom home builder from Wichita, Kan., stated in a press release. “The wild card for the outlook remains the election, and with housing policy a top-tier issue for candidates, policymakers should be focused on supply-side solutions to the housing crisis.”
“Despite the beginning of the Fed’s easing cycle, many prospective home buyers remain on the sideline waiting for lower interest rates,” NAHB chief economist Robert Dietz added in a press release. “We are forecasting uneven declines for mortgage interest rates in the coming quarters, which will improve housing demand but place stress on building lot supplies due to tight lending conditions for development and construction loans.”
All three HMI component indexes were higher in October. The index that charts current sales conditions rose 2 points, to 47; the component that measures sales expectations in the next six months increased 4 points, to 57; and the gauge that charts the traffic of prospective buyers rose 2 points, to 29. Any number above 50 indicates that more builders view conditions as good rather than poor.
The Commerce Department said sales of new homes rose 4.1%, to a seasonally adjusted annual rate of 738,000, from a downwardly revised August number. The pace of new-home sales in September was up 6.3% from the same month a year earlier. “Despite challenging affordability conditions, homebuilder confidence edged higher in October as they anticipate that mortgage rates will gradually, in an uneven manner, moderate in the coming months,” said NHB’s Harris. “There is a significant need for additional housing supply, as many prospective home buyers are entering the market.”
“Following the Fed’s actions in September, mortgage rates fell to 6.18%, from 6.5% in August,” Jing Fu, director of forecasting and analysis for NAHB, added in a press release. “However, new-home sales will likely weaken in October due to a recent rise in long-term rates.”
The median new-home sales price in September was $426,300, essentially unchanged year-over-year. NAHB said the government data revealed a gain for new-home sales priced less than $300,000, which made up 17% of new-home sales in September, compared with 14% a year earlier.
Existing-home sales were lower in September. The National Association of Realtors said sales fell 1%, to a seasonally adjusted annual rate of 3.84 million. “Home sales have been essentially stuck at around a 4-million-unit pace for the past 12 months, but factors usually associated with higher home sales are developing,” NAR chief economist Lawrence Yun stated in a press release.
“There are more inventory choices for consumers, lower mortgage rates than a year ago, and continued job additions to the economy,” Yun added. “Perhaps some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the [presidential] election.” NAR said the total housing inventory registered at the end of September was 1.39 million, up 1.5% from August and up 23% from the same month a year earlier.
Unsold inventory in September was at a 4.3-month supply at the current sales pace. That was up from a 4.2-month supply in August. “More inventory is certainly good news for home buyers, as it gives consumers more properties to view before making a decision,” Yun said. “However, the inventory of distressed properties is minimal because the mortgage delinquency rate remains very low. Distressed property sales accounted for only 2% of all transactions in September.”
The median existing-home sales price was $404,500 in September, up 3% from the same month a year earlier.
