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Economy’s Signposts Remain Strong

Suntex Marinas CEO Johnny Powers says the company ‘has performed very strongly from an occupancy and rate perspective’
Robust consumer confidence has led to predictions 
for big boat show sales.

Robust consumer confidence has led to predictions for big boat show sales.

An important measure of U.S. consumer confidence rose again in October to its highest level in 18 years, and employers added 250,000 jobs in another solid performance that kept the economic outlook bright for the recreational boating industry.

The Conference Board says its Consumer Confidence Index rose to 137.9 in October, up from 135.3 in September and just 6.3 points below the all-time high of 144.2, which was achieved in May 2000. “Consumer confidence increased in October, following a modest gain in September, and remains at levels last seen in the fall of 2000,” Lynn Franco, senior director of economic indicators at The Conference Board, says in a statement. “Consumers’ assessment of present-day conditions remains quite positive, primarily due to strong employment growth. The Expectations Index posted another gain in October, suggesting that consumers do not foresee the economy losing steam anytime soon. Rather, they expect the strong pace of growth to carry over into early 2019.”

Johnny Powers, founding principal and CEO of Suntex Marinas, says he believes the economy is “very healthy. GDP is strong, and consumer confidence is near all-time highs. Unemployment is low, and interest rates remain attractive.” For the foreseeable future, he says, “We see the economy remaining strong, especially for our business.”

Consumer confidence, which has been high throughout 2018, is showing resilience in the face of slowly rising interest rates, the trade war with China and turbulence in the financial markets. “We don’t know how long this is going to hold up, but the consumer is bullish on the outlook, and this means the economy is going to continue to advance in this long economic expansion from the last recession,” Chris Rupkey, chief economist at MUFG in New York, tells Reuters.

“At the end of the day, it is the job market, or the security of having a job with a regular paycheck, that supports confidence and spending,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, tells Reuters. “So far, so good.”

Employment and wages

The Labor Department reported that the unemployment rate held steady at a 49-year low of 3.7 percent in October. The economy added jobs in health care (36,000), manufacturing (32,000), construction (30,000), and transportation and warehousing (25,000).

The October job growth exceeded analysts’ expectations. The government reported that the average job gain for the past 12 months was a sturdy 211,000. “It doesn’t get any better than this,” Sung Won Sohn, president of SS Economics, a Los Angeles economic consulting firm, tells the Los Angeles Times. “The healthy job report shows that the relatively low September report was a temporary setback.”

“We’re going to continue to see solid job gains. This job market has more room to run,” Ryan Sweet, head of monetary policy research at Moody’s Analytics, tells Bloomberg.

Worker pay increases have been sluggish in recent years, even as the economy was rebounding from the Great Recession, but there was good news about pay in the October employment report. The government reported that workers’ average hourly earnings rose by 5 cents, or 0.2 percent, for the month, to $27.30. Average earnings rose 3.1 percent, or 83 cents, in October from a year earlier, which was the best annual increase since April 2009.

“The report shows a booming U.S. economy with a sufficient whiff of wage inflation to keep the Fed on track to raise rates in December and at least twice next year,” David Kelly, chief global strategist at JP Morgan Funds in New York, tells Reuters.

A second major gauge of American consumer confidence was lower in October than the previous month but remained at a high level. The University of Michigan’s Consumer Sentiment Index stood at 98.6 at the end of October, down from 100.1 the previous month. Richard Curtin, chief economist of the university’s Surveys of Consumers, says the index has been higher through October this year (at 98.5) than in any year since 2000.

“Importantly, stock price declines, rising inflation and interest rates, and the negative midterm election campaigns have not acted to undermine consumer confidence,” Curtin says. “Needless to say, consumers are not immune to these negative factors. The data only indicate that the tipping point toward escalating pessimism has not been reached.

“This resilience was primarily due to the prevailing belief that the economy would produce robust job growth during the year ahead, even if overall wage growth remained dismal,” he adds. “Consumers now place a higher value on job security, compared with wage growth, due to job losses in the Great Recession, as well as the aging of the labor force.”

GDP and inflation

The federal Commerce Department reported that the U.S. gross domestic product grew by a strong 3.5 percent in the third quarter, a performance that exceeded economists’ expectations. The advance came after a second-quarter growth rate of 4.2 percent and gave the economy its best consecutive quarters of growth since 2014. “There will come a day of reckoning for the economy after the tax cut monies are all gone, but for today, Washington really has something to crow about,” Rupkey, of MUFG, tells Reuters.

Inflation remained in check. The Commerce Department reported that the Personal Consumption Expenditures Price Index, a key measure of inflation and the Federal Reserve’s preferred inflation gauge, rose just 1.6 percent in the third quarter. That was significantly less than economists were expecting.

The department also reported that consumer spending, which accounts for about two-thirds of U.S. economic activity, grew by 4 percent in the third quarter. That was the strongest pace since the fourth quarter of 2014. Powers says Suntex closely watches consumer spending, “which is driven by consumer confidence and jobs. Boat sales, which are driven by discretionary spending, remain robust. Predictions are for the strongest boat show sales ever this year.”

Powers says Suntex, which has 48 marinas in 12 states, is doing well this year. “Our core business, which is the rental of slips, has performed very strongly from an occupancy and rate perspective,” he says.

Powers says Suntex has done well for three reasons: a significantly constrained supply of new marinas, high demand for boating and increases in customer spending on ancillary services, such as boat rentals, fuel and service work. A trend Powers is seeing is that “people will pay a premium for a first-class experience and hospitality.”

The Conference Board says its Leading Economic Index, which tries to predict future economic activity, rose 0.5 percent in September after advances of 0.4 percent in August and 0.7 percent in July. “The U.S. LEI improved further in September, suggesting the U.S. business cycle remains on a strong growth trajectory heading into 2019,” Ataman Ozyildirim, director and global research chairman at The Conference Board, says in a statement.

“However, the LEI’s growth has slowed somewhat in recent months, suggesting the economy may be facing capacity constraints and increasingly tight labor markets,” Ozyildirim adds. “Economic growth could exceed 3.5 percent in the second half of 2018, but unless the momentum in housing, orders and stock prices accelerates, that pace is unlikely to be sustained in 2019.”

Real estate

There were signs of weakness in the housing market as mortgage interest rates continued to rise amid the Federal Reserve’s increases in its benchmark interest rate. The central bank has increased short-term rates three times this year — they are now in a range of 2 to 2.25 percent — and is expected to raise them again before the year ends.

The Commerce Department reported that new-home sales fell 5.5 percent in September from the previous month, to a seasonally adjusted annual rate of 553,000, the lowest rate since December 2016. September marked the fourth consecutive month that new-home sales declined. “The September drop likely is due in part to Hurricane Michael, which the consensus seems to have ignored, even though it clearly hit the existing-home-sales numbers reported [on Oct. 19],” Ian Shepherdson, chief economist for Pantheon Macro, says in a MarketWatch report.

“We expect a clear rebound in October and then a spike in November, following August’s brief jump in mortgage applications,” he adds. “But the bigger picture is one of a market under pressure from rising rates and the beginnings of a cyclical tightening in lending standards.”

The Commerce Department reported that housing starts fell 5.3 percent in September, to a seasonally adjusted annual rate of 1.2 million. Confidence among home builders in the market for newly built single-family homes rose by 1 point, to 68, in October on the National Association of Home Builders/Wells Fargo Housing Market Index.

The NAHB says builder confidence levels have been in the high 60s since June. The association considers those levels to be solid. “Builders are motivated by solid housing demand, fueled by a growing economy and a generational low for unemployment,” NAHB chairman Randy Noel, a custom home builder from LaPlace, La., says in a statement. “Builders are also relieved that lumber prices have declined for three straight months from elevated levels earlier this summer, but they need to manage supply-side costs to keep home prices affordable.”

Adds NAHB chief economist Robert Dietz: “Favorable economic conditions and demographic tailwinds should continue to support demand, but housing affordability has become a challenge due to ongoing price and interest-rate increases. Unless housing affordability stabilizes, the market risks losing additional momentum as we head into 2019.”

The National Association of Realtors reported that existing-home sales fell 3.4 percent in September from the previous month, to a seasonally adjusted annual rate of 5.15 million.

Sales were down 4.1 percent from a year earlier. They were at a seasonally adjusted annual rate of 5.37 million in September last year.

Lawrence Yun, the association’s chief economist, blames rising interest rates. “This is the lowest existing-home-sales level since November 2015,” Yun says in a statement. “A decade’s high mortgage rates are preventing consumers from making quick decisions on home purchases. All the while, affordable home listings remain low, continuing to spur underperforming sales activity across the country.”

The NAR reported that the median home resale price in September was $258,100, up 4.2 percent from the same month last year. September’s price increase marked the 79th consecutive month of year-over-year gains.

Inventory at the end of September was 1.88 million, down from 1.91 million in August, but it was up from 1.86 million a year earlier. “There is a clear shift in the market with another month of rising inventory on a year-over-year basis, though seasonal factors are leading to a third straight month of declining inventory,” Yun says. “Homes will take a bit longer to sell, compared to the super-heated fast pace seen earlier this year.”

This article originally appeared in the December 2018 issue.



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