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A key measure of U.S. consumer confidence edged lower in February, even though the economy added a surprising 678,000 jobs, the most in seven months. The Conference Board reported that its Consumer Confidence Index fell to 110.5 from 111.1 in January.

“Consumer confidence was down slightly for a second consecutive month in February,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “The Present Situation Index improved a touch, suggesting the economy continued to expand in Q1 but did not gain momentum. Expectations about short-term growth prospects weakened further, pointing to a likely moderation in growth over the first half of 2022. Meanwhile, the proportion of consumers planning to purchase homes, automobiles, major appliances and vacations over the next six months all fell.”

A separate measure of the consumer’s mood was also lower in February. The University of Michigan reported that its Consumer Sentiment Index fell to 62.8 from 67.2 in January, remaining at its lowest level in the past decade. Richard Curtin, chief economist of the university’s Surveys of Consumers, said the loss “was still entirely due to a 12.9 percent decline among households with incomes of $100,000 or more. The February descent resulted from inflationary declines in personal finances, a near universal awareness of rising interest rates, falling confidence in the government’s economic policies and the most negative long-term prospects for the economy in the past decade.

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“Virtually all interviews were conducted prior to the Russian invasion [of Ukraine], so its impact is yet to be felt by consumers,” Curtin added. “The most likely linkage to the domestic economy is through rising energy prices, with the size and length of the potential increases subject to substantial uncertainty. This will complicate the Fed’s policy actions, tilting their objectives to focus more on inflation at the cost of slower growth and higher unemployment. The financial harm and growing angst among consumers about rising inflation have pushed nearly nine in 10 consumers to anticipate interest rate hikes.”

The U.S. Department of Labor reported that the unemployment rate fell to 3.8 percent in February, the lowest rate during the Covid-19 pandemic. The leisure and hospitality sector added 179,000 jobs, professional and business services added 95,000, health care added 64,000, construction added 60,000, and transportation and warehousing added 48,000.

“Covid is loosening its grip. The virus ruled through fear, and that fear is fading,” Austan Goolsbee, an economics professor at the University of Chicago and a former Obama White House adviser, told The Washington Post. “You see that around the country, as people are willing to go back out to jobs they weren’t willing to take in the midst of the pandemic.”

On a negative note, the government reported that average hourly earnings rose just one cent in February, to $31.58, after large increases in recent months. “On balance, despite weakness in wages, this is one more in a long line of reports suggesting the Fed should have started raising rates ages ago,” Chris Low, chief economist at FHN Financial in New York, told Reuters. “The Fed has its work cut out if it wants to slow demand enough to stabilize the unemployment rate at 4 percent.”

The U.S. Department of Commerce reported that consumer spending surged 2.1 percent in January after falling 0.8 percent in December. Personal income was unchanged.

Inflation rose in January. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy components, rose 0.5 percent. In the 12 months through January, the so-called core PCE index rose 5.2 percent, the largest increase since April 1983. The PCE index is the Federal Reserve’s preferred inflation gauge.

“The real economy appears to be in stronger health than we feared, suggesting that the Fed will push on with its planned rate hikes starting in March, although the Ukraine conflict makes a 50-basis-points hike less likely,” Paul Ashworth, chief U.S. economist at Capital Economics in Toronto, told Reuters.

The Conference Board reported that its Leading Economic Index fell by 0.3 percent in January, to 119.6, after increases of 0.7 percent in December and 0.8 percent in November. “The U.S. LEI posted a small decline in January as the omicron wave, rising prices and supply-chain disruptions took their toll,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “Initial claims for unemployment insurance, consumers’ outlook and declines in stock prices, and the average workweek in manufacturing all contributed to the decline — the first since February 2021.

“Despite [January’s] decline and a deceleration in the LEI’s six-month growth rate, widespread strengths among the leading indicators still point to continued, albeit slower, economic growth into the spring,” Ozyildirim added. “However, labor shortages, inflation and the potential of new Covid-19 variants pose risks to growth in the near term. The Conference Board forecasts GDP growth for Q1 to slow somewhat from the very rapid pace of Q4 2021. Still, the U.S. economy is projected to expand by a robust 3.5 percent year-over-year in 2022 — well above the prepandemic growth rate, which averaged around 2 percent.”

The mood at the nation’s small businesses darkened slightly in January. The National Federation of Independent Business reported that its Small Business Optimism Index fell 1.8 points, to 97.1. “More small business owners started the new year raising prices in an attempt to pass on higher inventory, supplies and labor costs,” NFIB chief economist Bill Dunkelberg stated in a press release. “In addition to inflation issues, owners are also raising compensation at record-high rates to attract qualified employees to their open positions.”

Forty-seven percent of member business owners said they had job openings they could not fill. A net 50 percent of member owners said they raised pay, a 48-year record high reading.

Confidence among the nation’s home builders slipped in February. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index fell by one point, to 82.

“Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances,” NAHB chairman Jerry Konter stated in a press release. “These delivery delays are raising construction costs and pricing prospective buyers out of the market. Policy-makers must make it a
priority to address supply-chain issues that are harming housing affordability.”

NAHB chief economist Robert Dietz added: “Residential construction costs are up 21 percent on a year-over-year basis, and these higher development costs have hit first-time buyers particularly hard. Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.”

The HMI index that gauges current sales conditions increased one point, to 90; the gauge that measures sales expectations in the next six months fell two points, to 80; and the component that charts the traffic of prospective buyers dropped four points, to 65. Any number above 50 indicates that more builders view conditions as good rather than poor.

The Commerce Department reported that sales of new homes fell 4.5 percent, to a seasonally adjusted annual rate of 801,000, in January. It was the first decline in three months.

Existing-home sales surged in January. The National Association of Realtors reported that sales rose 6.7 percent, to a seasonally adjusted annual rate of 6.5 million. “Buyers were likely anticipating further rate increases and locking in at the low rates, and investors added to overall demand with all-cash offers,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “Consequently, housing prices continue to move solidly higher.”

The median existing-home price in January was $350,300 as prices rose in each region of the country. This marks 119 consecutive months of year-over-year increases, which the NAR says is the longest-running streak on record. 

This article was originally published in the April 2022 issue.

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