A key measure of consumer confidence edged higher in July, reaching a 16-month high, amid a rising number of vaccinations against the coronavirus and despite an outbreak of the Delta variant of the virus.
The Conference Board reported that its Consumer Confidence Index rose to 129.1 from an upwardly revised reading of 128.9 in June.
“Consumer confidence was flat in July but remains at its highest level since February 2020,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start. Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs and personal financial prospects will improve. Spending intentions picked up in July, with a larger percentage of consumers saying they planned to purchase homes, automobiles and major appliances in the coming months. Thus, consumer spending should continue to support robust economic growth in the second half of 2021.”
A separate reading of the American consumer’s mood was lower in July. The University of Michigan reported that its Consumer Sentiment Index fell from 85.5 in June to 81.2.
“The largest monthly declines remained concentrated in the outlook for the national economy and complaints about high prices for homes, vehicles and household durables,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release.
“While most consumers still expect inflation to be transitory, there is growing evidence that an inflation storm is likely to develop on the not too distant horizon,” Curtin added. “The improved finances of consumers have greatly reduced consumers’ resistance to price increases. … Firms have reacted to their own supply and labor shortages with a greater readiness to increase prices as well as wages. Consumers and firms currently justify their actions as temporary adjustments due to the pandemic. However justified, such changes act to generate an upward spiral in prices and wages. Moreover, the fiscal and monetary policies already in place, and the likely increases and continued accommodation now contemplated, will only increase the willingness of consumers and firms to act in ways that accelerate the upward spiral in prices and wages.”
Government figures showed that the U.S. economy grew sharply in the second quarter. The U.S. Department of Commerce reported that the economy expanded by 6.5 percent in the second quarter after a 6.3 percent gain in the first quarter.
The outlook was for the growth to continue. “Consumers have plenty of income and wealth ammunition to support consumer spending, while business inventories remain lean and restocking efforts are poised to support business investment and overall GDP growth substantially in the second half of the year,” Sam Bullard, a senior economist at Wells Fargo, told Reuters.
The Federal Reserve, at a meeting in late July, kept its benchmark interest rate between zero and 0.25 percent. The Federal Open Market Committee, the Fed’s rate-setting panel, stated in a press release that the central bank would also continue its monthly purchases of $120 billion in bonds, in an ongoing effort to stimulate the economy.
“The path of the economy continues to depend on the course of the [coronavirus],” the Fed added in its statement. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”
Consumer spending climbed 1 percent in June as outlays for travel increased. “The overall trend of healthy to strong growth will continue into next year,” Scott Hoyt, a senior economist at Moody’s Analytics, told Reuters. “Downside risks remain large. The return of shutdowns from increased [coronavirus] infections is unlikely but cannot be ruled out. There are also upside risks, especially given all the extra saving since the spring of 2020.”
Personal incomes edged up 0.1 percent with government stimulus payments at an end.
Inflation rose. The Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge, was up 0.4 percent in June with the volatile food and energy sectors excluded. In the 12-month period through June, that measure of the PCE was up 3.5 percent, the largest gain in nearly three deacades.
The Conference Board reported that its Leading Economic Index increased 0.7 percent in June, to 115.1, after gains of 1.2 percent in May and 1.3 percent in April. The index attempts to predict future economic activity.
“June’s gain in the U.S. LEI was broad-based and, despite negative contributions from housing permits and average workweek, suggests that strong economic growth will continue in the near term,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “While month-over-month growth slowed somewhat in June, the LEI’s overall upward trend — which started with the end of the pandemic-induced recession in April 2020 — accelerated further in Q2. The Conference Board still forecasts year-over-year real GDP growth of 6.6 percent for 2021 and a healthy 3.8 percent for 2022.”
The mood among the nation’s small businesses brightened in June. The National Federation of Independent Business reported that its Small Business Optimism Index rose 2.9 points, to 102.5. It was the first time since last November that the index has been above 100.
“Small businesses’ optimism is rising as the economy opens up, yet a record number of employers continue to report that there are few or no qualified applicants for open positions,” NFIB chief economist Bill Dunkelberg stated in a press release. “Owners are also having a hard time keeping their inventory stocks up, with strong sales and supply-chain problems.”
Forty-six percent of business owners in the NFIB reported job openings in June that they could not fill. That was a decrease of 2 percent from May, but the percentage was still historically high and well above the 48-year historical average of 22 percent.
Confidence among home builders edged lower in July. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index fell to 80, from 81 in June.
“Builders continue to grapple with elevated building material prices and supply shortages, particularly the price of oriented strand board, which has skyrocketed more than 500 percent above its January 2020 level,” NAHB chairman Chuck Fowke stated in a press release. “We are grateful that the White House heeded our urgent plea to hold a building materials meeting with interested stakeholders on July 16 to seek solutions to end production bottlenecks that have harmed housing affordability.”
NAHB chief economist Robert Dietz added: “Builders are contending with shortages of building materials, buildable lots and skilled labor, as well as a challenging regulatory environment. This is putting upward pressure on home prices and sidelining many prospective home buyers even as demand remains strong in a low-inventory environment.”
The three major HMI indices were mixed in June. The index that gauges current sales conditions fell one point, to 86; the component that measures the traffic of prospective buyers dropped six points, to 65; and the gauge that charts sales expectations in the next six months posted a two-point gain, to 81.
The Commerce Department reported that sales of new homes fell to a seasonally adjusted annual rate of 676,000 in June from 724,000 in May. Sales declined for the third month in a row, and the figure was a 14-month low.
“Home builders continue to hold back on contracts for new homes given input cost and availability uncertainties, with significant uncertainty about what it will cost to build a house and when it can be delivered,” David Berson, chief economist at Nationwide Insurance, told Reuters. “Until builder costs and supply-chain problems become less of an impediment, it is hard to see new sales picking up significantly in the near term.”
Home resales rose in June, ending four consecutive months of declines. The National Association of Realtors reported that sales grew 1.4 percent from May to a seasonally adjusted annual rate of 5.86 million.
“Supply has modestly improved in recent months due to more housing starts and existing homeowners listing their homes, all of which has resulted in an uptick in sales,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “Home sales continue to run at a pace above the rate seen before the pandemic.”
The median home price in June was $363,300, up 23.4 percent from June 2020, as every region of the country recorded an increase. The NAR reported that prices have increased for 112 months in a row.