A Rising Tide

A robust economy and positive outlook among consumers and businesses continue to pilot the ship toward pre-pandemic normalcy
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Jonathan Hough

Jonathan Hough

A prime measure of consumer confidence soared in April as the number of fully vaccinated Americans rose above the 100 million milestone.

The Conference Board reported that its Consumer Confidence Index rose to 121.7 from a revised 109.0 in March and was at a 14-month high.

“Consumers’ assessment of current conditions improved significantly in April, suggesting the economic recovery strengthened further in early Q2,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “Consumers’ optimism about the short-term outlook held steady [as] consumers were more upbeat about their income prospects, perhaps due to the improving job market and the recent round of stimulus checks. Short-term inflation expectations held steady in April but remain elevated. Vacation intentions posted a healthy increase, likely boosted by the accelerating vaccine rollout and further loosening of pandemic restrictions.”

Another key measure of consumer confidence also climbed in April. The University of Michigan reported that its Consumer Sentiment Index rose from 84.9 in March to 88.3. “The April survey recorded continued gains in consumer confidence due to a growing sense that the upward momentum in jobs and incomes will persist,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release.

“The renewed confidence is due to record federal stimulus spending, both recently passed and proposed, as well as the positive impact from a growing share of the population who are vaccinated,” Curtin added. “The largest and most important change in April was that an all-time record number of consumers expected declines in the unemployment rate during the year ahead. Even if a booming economy resulted in higher inflation, consumer optimism would not diminish since consumers have already anticipated a temporary increase. Overall, the data indicated an exceptional outlook for consumer spending through mid-2022. The size and persistence of the spending gains depend on continued job growth, as well as wages that effectively draw people back into the labor force.”

Jonathan Hough, founder and managing partner of Houston-based Slammer Marine, said he believed the U.S. economy was generally healthy.

“Unemployment continues to fall and business earnings are improving,” Hough said. “Many of our consumers have a pent-up demand for leisure activities, and boating remains a sanctioned activity.”

Slammer Marine develops dock-mounted boat fenders for marina fuel docks, private boat slips and waterfront docks. Its system won an NMMA Innovation Award at the 2015 Miami International Boat Show. Hough says that the pandemic has created increased demand for the type of safety and protective equipment Slammer Marine makes, and that he has had to focus more on inventory management.

“We see 5 to 10 percent cost increases across the board, largely driven by lower supplies of petrochemical products due to 2021’s Gulf Coast/Texas freeze and a higher demand for marine-grade materials derived from marine-grade polymers,” he said.

Even still, he says, Slammer Marine “had our best year in 2020, which was up more than 25 percent over 2019. Our first quarter was significantly stronger than 1Q 2020, so we are confident we will deliver top-line growth in excess of 25 percent for 2021.”

Slammer is far from the only company that had a strong first quarter. The U.S. Department of Commerce reported that the nation’s gross domestic product grew by 6.4 percent in the time period, the second-fastest since the second quarter of 2003. “This signals the economy is off and running and it will be a boomlike year,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC. “Obviously, the American consumer is powering the train and businesses are investing strongly.”

The Commerce Department also reported that consumer spending jumped 4.2 percent in March, boosted by the $1,400 stimulus payments that most Americans received. Personal income jumped 21.1 percent in March, also a result of the government’s pandemic-related payments.

“While we aren’t completely out of the woods yet, [the April 30 spending] report shows the beginning of an economic rebound,” Brendan Coughlin, head of consumer banking at Citizens in Boston, told Reuters. “Assuming no setback in the continued rollout of the vaccines, U.S. consumers are well-positioned in the second half of the year to stimulate strong economic growth across the country.”

Inflation was also higher in March. The Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation index, rose 0.5 percent. That sent the 12-month average up to 2.3 percent from 1.5 percent in February.

The Federal Reserve decided at a meeting in late April to continue its policy of low interest rates and bond buying in an effort to stimulate the economy.

The Fed’s benchmark interest rate was near zero, and the central bank was buying at least $120 billion in bonds each month. “While the recovery has progressed more quickly than generally expected, it remains uneven and far from complete,” Fed chairman Jerome Powell said at a press conference that followed the bank’s two-day meeting.

The Conference Board reported that its Leading Economic Index rose 1.3 percent in March, to 111.6, after an 0.1 percent decrease in February and an 0.5 percent increase in January.

“The U.S. LEI rose sharply in March, which more than offset February’s slightly negative revised figure,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “The improvement in the U.S. LEI, with all 10 components contributing positively, suggests economic momentum is increasing in the near term. The widespread gains among the leading indicators are supported by an accelerating vaccination campaign, gradual lifting of mobility restrictions, as well as current and expected fiscal stimulus. The recent trend in the U.S. LEI is consistent with the economy picking up in the coming months, and The Conference Board now projects year-over-year growth could reach 6.0 percent in 2021.”

The mood among the nation’s small businesses brightened in March. The National Federation of Independent Business reported that its Small Business Optimism Index rose 2.4 points, to 98.2.

“Main Street is doing better as state and local restrictions are eased, but finding qualified labor is a critical issue for small businesses nationwide,” NFIB chief economist Bill Dunkelberg stated in a press release. “Small business owners are competing with the pandemic and increased unemployment benefits that are keeping some workers out of the labor force. However, owners remain determined to hire workers and grow their business.”

Confidence among home builders slightly improved. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index rose one point, to 83, in April.

“Despite strong buyer traffic, builders continue to face challenges to add much needed housing supply to the market,” NAHB chairman Chuck Fowke stated in a press release. “The supply chain for residential construction is tight, particularly regarding the cost and availability of lumber, appliances and other building materials. Though builders are seeking to keep home prices affordable in a market in need of more inventory, policy-makers must find ways to increase the supply of building materials as the economy runs hot in 2021.”

NAHB chief economist Robert Dietz added: “While mortgage interest rates have trended higher since February and home prices continue to outstrip inflation, housing demand appears to be unwavering for now as buyer traffic reached its highest level since November. NAHB’s forecast is for ongoing growth in single-family construction in 2021, albeit at a lower growth rate than realized in 2020.”

The HMI index that gauges current sales conditions increased one point, to 88; the gauge that charts the traffic of prospective buyers posted a three-point gain, to 75. The component that measures sales expectations in the next six months fell two points, to 81. Any number above 50 indicates that more builders view conditions as good rather than poor.

The Commerce Department reported that new-home sales surged 20.7 percent in March from February, rising to 1.02 million on a seasonally adjusted annual basis — the fastest rate of new-home sales since 2006, and the sales were more than double those of March 2020. The increase was attributed, in part, to a shortage of existing homes for sale.

Existing-home sales fell in March for the second month in a row. The National Association of Realtors reported that sales dropped 3.7 percent, to a seasonally adjusted annual rate of 6.01 million. The rate was the lowest since August. “Consumers are facing much higher home prices, rising mortgage rates and falling affordability; however, buyers are still actively in the market,” Lawrence Yun, NAR’s chief economist, stated in a press release.

“The sales for March would have been measurably higher, had there been more inventory,” Yun added. “Days-on-market are swift, multiple offers are prevalent, and buyer confidence is rising.”

The median existing-home price in March was $329,100, up 17.2 percent from March a year earlier, as prices increased in every region of the country. The price increase marks 109 straight months of year-over-year gains. 

This article was originally published in the June 2021 issue.

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