An important measure of consumer confidence, the Conference Board’s Consumer Confidence Index, was one of several indicators that declined in November as the Covid-19 pandemic continued to spread. The index fell to 96.1 from an upwardly revised reading of 101.4 in October.
“Consumer confidence declined in November after remaining virtually flat in October,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “Consumers’ assessment of present-day conditions held steady, though consumers noted a moderation in business conditions, suggesting growth has slowed in Q4. Heading into 2021, consumers do not foresee the economy, nor the labor market, gaining strength. In addition, the resurgence of Covid-19 is further increasing uncertainty and exacerbating concerns about the outlook.”
A separate measure of consumer confidence was also lower in November: The University of Michigan’s Consumer Sentiment Index fell to 76.9 from a reading of 77.0 earlier in the month and 81.8 in October.
“Consumer sentiment was unchanged in late November — a difference of just 0.1 points from mid-month — although there was a significant decline in the expectations component, which was offset by more favorable assessments of current economic conditions,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “Importantly, the November data were less optimistic than last month due to the resurgence in Covid infections and deaths, as well as partisan shifts due to the outcome of the presidential election.
“For the first time since [President] Trump entered office, Democrats rather than Republicans held a more optimistic economic outlook,” Curtin added. “The steep rise in Covid infections had a greater impact on Democrats, as 59 percent reported that the coronavirus had changed their lives to a great extent, compared with just 36 percent among Republicans. In the months ahead, if infections and deaths rise as anticipated, further declines in optimism are likely. The anticipated declines, however, will be tempered by the approval of several vaccines by the end of the year.”
Scott Kolodny, regional sales manager for the manufacturers’ representative ComMar Sales and president of the National Marine Representatives Association, says he had more confidence in the U.S. economy when Congress passed the CARES Act, providing stimulus funds to individuals and businesses. Another round is needed now, he says, as the coronavirus rages out of control.
“While the stock market is a good bellwether for our industry, if unemployment remains high and the federal government does not complete another round of stimulus for those that need it most, I am concerned about how this will impact not only our industry, but our nation as a whole,” he says. “We could continue with the growth that we have seen, but the federal government needs to take a more active role now and not wait until January.”
Kolodny says ComMar Sales has fared well during the pandemic. Demand exceeded availability during the late spring and summer, when the team shifted to virtual meetings with customers and suppliers. Unlike companies that furloughed staff early on, ComMar took a wait-and-see approach. The result, he says, was that “I think we were more nimble and reacted to our customers’ needs with greater consistency and promptness.
“Numbers for 2020 are outstanding, but I believe that these numbers are artificially good,” he says, adding that ComMar saw modest growth in 2019 from 2018. “People are taking discretionary income and spending it in our sector, since they can’t travel or go to sporting events, concerts, etcetera.”
Kolodny says Trump’s tariffs “have been more of an aggravation than anything else,” and that more guidance is needed. “Pricing of goods being subject to a tariff has had to be increased and passed on to our customers. And, of course, the customer wants to make certain that this pricing will be rolled back’ once the tariffs are lifted,” he says. “Unfortunately, there is no clear timetable as to when or if these tariffs will be lifted.”
The U.S. Commerce Department reported that consumer spending rose 0.5 percent in October, but the gain was the smallest since April. Personal income dropped 0.7 percent as government stimulus programs ended.
Inflation remained tame. The Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation barometer, rose 1.2 percent in October at an annual rate, down from 1.4 percent in September. The core rate, which takes out the volatile food and energy categories, rose at a 1.3 percent annual rate.
The Conference Board’s Leading Economic Index, which attempts to predict future economic activity, rose 0.7 percent, to 108.2, in October after increases of 0.7 percent in September and 1.6 percent in August.
“The U.S. LEI rose again in October, with widespread improvements despite weakness from housing permits and consumers’ outlook on economic conditions. However, the leading index has been decelerating in recent months, which suggests growth will moderate significantly in the final months of 2020, slowing down from the unusually rapid pace in Q3,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “Furthermore, downside risks to growth from a second wave of Covid-19 and high unemployment persist. While The Conference Board projects the U.S. economy will expand in Q4, the pace of growth is unlikely to exceed 2.2 percent” at an annual rate.
The mood among the nation’s small businesses remained steady in October. The National Federation of Independent Business reported that its Small Business Optimism Index was flat at 104.0, a reading that the group called historically high.
“Leading up to the presidential election, small businesses continued to focus on stabilizing their businesses, but were uncertain about the future economic conditions due to Covid-19 government regulations on all levels,” NFIB chief economist Bill Dunkelberg stated in a press release. “We see solid momentum going into the fourth quarter, and another good quarter could get the GDP back to its 2019 closing levels.”
Confidence among home builders improved in November. The National Association of Home Builders reported that confidence in the market for newly built, single-family homes increased five points, to 90, on the NAHB/Wells Fargo Housing Market Index.
It was a record high for the index, which has set records for three months in a row.
“Historically low mortgage rates, favorable demographics and an ongoing suburban shift for home-buyer preferences have spurred demand and increased new home sales by nearly 17 percent in 2020 on a year-to-date basis,” NAHB chairman Chuck Fowke stated in a press release. “Though builders continue to sign sales contracts at a solid pace, lot and material availability is holding back some building activity. Looking ahead to next year, regulatory policy risk will be a key concern, given these supply-side constraints.”
NAHB chief economist Robert Dietz added: “Another record high for the HMI reflects that housing is a bright spot for the economy. However, affordability remains an ongoing concern, as construction costs continue to rise and interest rates are expected to move higher as more positive news emerges on the coronavirus vaccine front. In the short run, the shift of housing demand to lower-density markets, such as suburbs and exurbs, with ongoing low resale inventory levels is supporting demand for home building.”
All of the HMI indices posted their highest readings ever in November. The HMI index that gauges current sales conditions rose six points, to 96; the component that measures sales expectations in the next six months increased one point, to 89; and the measure that charts the traffic of prospective buyers rose three points, to 77.
Any number above 50 indicates that more builders see conditions as good rather than poor.
The Commerce Department reported that sales of new single-family homes fell 0.3 percent in October from September, to a seasonally adjusted rate of 999,000 units, although that level remained relatively high. Housing demand has been a source of strength for the U.S. economy during the pandemic, and the October new-home sales results represented a huge 41.5 percent gain from the same month a year earlier.
In the existing-home market, sales rose for the fifth month in a row in October. The National Association of Realtors reported that sales increased 4.3 percent from September to a seasonally adjusted annual rate of 6.85 million. On a year-over-year basis, sales were up 26.6 percent from October 2019.
“Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “The surge in sales in recent months has now offset the spring market losses. With news that a Covid-19 vaccine will soon be available, and with mortgage rates projected to hover around 3 percent in 2021. I expect the market’s growth to continue into 2021.”
The NAR also reported that the median existing-home price in October was $313,000, up 15.5 percent from October 2019, as prices increased in every region of the country. The price increase marks 104 straight months of year-over-year gains.
This article was originally published in the January 2021 issue.
