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Back and Forth and Back Again

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A key measure of U.S. consumer confidence declined in November as a new coronavirus variant — omicron — was discovered in southern Africa, leading dozens of nations to enact new travel restrictions and crashing the U.S. stock market.

The Conference Board reported that its Consumer Confidence Index fell to 109.5 from 111.6 in October.

“Consumer confidence moderated in November, following a gain in October,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “Expectations about short-term growth prospects ticked up, but job and income prospects ticked down. Concerns about rising prices — and, to a lesser degree, the delta variant — were the primary drivers of the slight decline in confidence. Meanwhile, the proportion of consumers planning to purchase homes, automobiles and major appliances over the next six months decreased.

“The Conference Board expects this to be a good holiday season for retailers, and confidence levels suggest the economic expansion will continue into early 2022,” Franco added. “However, both confidence and spending will likely face headwinds from rising prices and a potential resurgence of Covid-19 in the coming months.”

A separate reading of consumers’ collective mood was also lower in November. The University of Michigan reported that its Consumer Sentiment Index fell to 67.4 from 71.7 in October.

“Consumers expressed less optimism in the November 2021 survey than any other time in the past decade about prospects for their own finances as well as for the overall economy,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “The decline was due to a combination of rapidly escalating inflation combined with the absence of federal policies that would effectively redress the inflationary damage to household budgets.”

Curtin added that “the roots of inflation have grown and spread more broadly across the economy. One in four consumers cited inflationary erosions of their living standards in November. Rather than gradually easing along with diminished shortages, complaints about falling living standards doubled in the past six months and quintupled in the past year.”

Nonetheless, the U.S. Department of Commerce reported that consumer spending rose by a strong 1.3 percent in October, although the increase was a somewhat more modest 0.7 percent after inflation was figured in. Personal income rose 0.5 percent.

Inflation has continued to rise. The core Personal Consumption Expenditures Price Index, which excludes the volatile food and energy sectors, rose 0.4 percent in October. The core PCE index increased 4.1 percent during the 12-month period through October.

President Biden announced on Nov. 23 that the U.S. would release 50 million barrels of crude oil from the Strategic Petroleum Reserve to help reduce oil prices.

The Conference Board reported that its Leading Economic Index rose 0.9 percent in October, to 118.3, after increases of 0.1 percent in September and 0.7 percent in August. The index attempts to predict future economic activity.

“The U.S. LEI rose sharply in October, suggesting the current economic expansion will continue into 2022 and may even gain some momentum in the final months of this year,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “Gains were widespread among the leading indicators, with only the average workweek and consumers’ outlook making negative contributions.

“However, rising prices and supply-chain bottlenecks pose challenges to growth and are not expected to dissipate until well into 2022,” Ozyildirim added. “Despite these headwinds, The Conference Board forecasts growth to remain strong in the fourth quarter at around 5.0 percent (annualized rate) before moderating to a still historically robust rate of 2.6 percent in Q1 2022.”

The mood among the nation’s small businesses cooled in October. The Small Business Optimism Index of the National Federation of Independent Business fell 0.9 points, to 98.2.

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“Small business owners are attempting to take advantage of current economic growth but remain pessimistic about business conditions in the near future,” NFIB chief economist Bill Dunkelberg stated in a press release. “One of the biggest problems for small businesses is the lack of workers for unfilled positions and inventory shortages, which will continue to be a problem during the holiday season.”

Forty-nine percent of NFIB business owners reported having job openings in October that they could not fill. A net 44 percent of business owners said they raised employee pay, which the NFIB said was at a 48-year record high.

Confidence among the nation’s home builders rose in November. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index climbed three points, to 83.

“The solid market for home building continued in November despite ongoing supply-side challenges,” NAHB chairman Chuck Fowke stated in a press release. “Lack of resale inventory combined with strong consumer demand continues to boost single-family home building.”

NAHB chief economist Robert Dietz added: “In addition to well-publicized concerns over building materials and the national supply chain, labor and building-lot access are key constraints for housing supply. Lot availability is at multidecade lows, and the construction industry currently has more than 330,000 open positions. Policy-makers need to focus on resolving these issues to help builders produce more housing to meet strong market demand.”

The HMI index that gauges current sales conditions rose three points, to 89; the gauge that charts the traffic of prospective buyers also added three points, to 68. The component that measures sales expectations in the next six months was steady at 84.

Any number over 50 indicates that more builders view conditions as good rather than poor.

According to the U.S. Commerce Department, sales of new homes rose 0.4 percent, to a seasonally adjusted annual rate of 745,000 in October. Existing-home sales were also higher in October. The National Association of Realtors reported that sales rose 0.8 percent, to a seasonally adjusted annual rate of 6.34 million.

“Home sales remain resilient, despite low inventory and increasing affordability challenges,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment.”

The median existing-home price in October was $353,900, which was up 13.1 percent from October of last year as prices climbed in every region of the country. The increase marks 116 straight months of year-over-year gains.

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