‘Main Street is Still Running Strong’

A healthy jobs report and a cut in a key interest rate contribute to a boost in consumer confidence
Author:
Publish date:
Oceanmax’s Clint Jones says the New Zealand-based company is enjoying strong U.S. sales but is expanding in Europe and Australia to “diversify costs and risks.” 

Oceanmax’s Clint Jones says the New Zealand-based company is enjoying strong U.S. sales but is expanding in Europe and Australia to “diversify costs and risks.” 

The Federal Reserve is worried about the U.S. economy, but consumer confidence showed a big gain in July, and the nation added 164,000 jobs in a solid performance that eased recession fears.

The Conference Board said the Consumer Confidence Index bounced back in July to 135.7 from 124.3 in June in a report issued July 30, a day before the Federal Reserve cut interest rates for the first time since 2008.

“After a sharp decline in June, driven by an escalation in trade and tariff tensions, consumer confidence rebounded in July to its highest level this year,” Lynn Franco, senior director of economic indicators at The Conference Board, said in a statement. “Consumers are once again optimistic about current and prospective business and labor market conditions. In addition, their expectations regarding their financial outlook also improved. These high levels of confidence should continue to support robust spending in the near term, despite slower growth in GDP.”

Separately, a second important measure of consumer confidence edged higher in July. The University of Michigan’s Consumer Sentiment Index rose to 98.4 from 98.2 in June. “Economic confidence has been remarkably stable since the start of 2017, despite ongoing trade uncertainties,” Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement. “The resilience displayed has been primarily due to a renewed sense of personal financial optimism. Indeed, recent surveys have recorded the most favorable net personal financial expectations since May 2003. Positive job and income prospects, gains in net household wealth and low inflation have bolstered optimism.”

However, The Conference Board’s Leading Economic Index declined 0.3 percent in June, to 111.5. It was the largest decline in three years. The index attempts to predict future economic activity, and the latest reading suggests growth will moderate in the second half of the year.

“The U.S. LEI fell in June, the first decline since last December, primarily driven by weaknesses in new orders for manufacturing, housing permits and unemployment insurance claims,” Ataman Ozyildirim, senior director of economic research at The Conference Board, said in a statement. “For the first time since late 2007, the yield spread made a small negative contribution. As the U.S. economy enters its 11th year of expansion — the longest in U.S. history — the LEI suggests growth is likely to remain slow in the second half of the year.”

Seeing potential problems on the horizon, the Fed reduced its benchmark interest rate by a quarter-point to bolster the economy, but it did not commit to significant further reductions, which disappointed the financial markets. “Let me be clear. What I said was, it’s not the beginning of a long series of rate cuts,” Fed chairman Jerome Powell said at a press conference July 31, when the rate move was announced. “I didn’t say it’s just one rate cut,” he added.

Powell said the U.S. economy remains healthy but faces problems involving “weak global growth, trade policy uncertainty and muted inflation.”

The U.S. Labor Department’s July jobs report included an unemployment rate of 3.7 percent, unchanged from the previous month. The job growth met analysts’ expectations. “Job gains were fairly broad-based across different sectors,” Gregory Daco, chief economist of Oxford Economics USA, told The New York Times. “This was a good jobs report overall.”

The government said there were significant job gains in professional and technical services (31,000), health care (30,000), social assistance (20,000), and financial activities (18,000). The manufacturing sector added 16,000 jobs.

The Labor Department said it revised its May jobs total downward by 10,000, to 62,000, and lowered its June figure by 31,000, to 193,000. With the revisions, job growth has averaged 140,000 during the past three months. “An average of 140,000 jobs over the last few months isn’t terrible, but it is a definite slowdown from the numbers we saw last year,” Martha Gimbel, research director at Indeed’s Hiring Lab, told The Washington Post.

In July, average hourly earnings rose by 8 cents, to $27.98, after an 8-cent gain in June, the government said. During the past 12 months, average hourly earnings have increased by 3.2 percent. Wage gains remain smaller than economists expected in an economy that has been growing for a decade, shrinking the pool of available workers. “Wage growth should be higher if the labor market were truly at full employment,” Edward Al-Hussainy, a senior analyst at the investment firm Columbia Threadneedle, told the Post.

At Oceanmax, a New Zealand-based manufacturer of coatings designed to prevent aquatic growth on propellers, running gear and underwater lighting, president of international sales Clint Jones acknowledges watching the U.S. economy closely. “As the U.S. is our largest market, we are very conscious of the economic climate,” Jones says. “However, in a fluctuating market we see that our actions are impacted to a greater extent by much more than just the economy.

“As we service a relatively new niche — propeller and underwater light coatings — the factor that affects our growth most directly is the work we do to ensure our brand awareness is top of mind,” Jones adds. “Irrespective of the economic climate in over 35 countries around the world, we have seen consistent growth worldwide in the last five years, due to us leading the charge in this fast-developing segment.”

In watching the U.S. economy, he says there is “no denying that consumer spending is a key indicator. As we all know in this industry, disposable income spent on boats is one of the first markers of change in a declining market.”

Jones says Oceanmax has been striving to broaden its markets. “Though the U.S. is our largest market — one that has grown by double-digit numbers over the last five years — spreading our growth around the globe is a good way to diversify costs and risks in fluctuating markets,” Jones says. “This year’s March-to-May quarter, we enjoyed our largest growth by a large margin but at the same time reduced our reliance on the U.S. market to below 50 percent of our total sales. This has seen us enjoying substantial growth in the Australian and European segments.”

Jones says it has been “exciting” to watch specific geographical markets “hit key penetration numbers and watch the corresponding sales growth. This has given us the confidence to further invest in great people and announce that we will be opening offices in the U.S. and Europe.”

Jones says President Trump’s tariffs have had no effect on Oceanmax’s business to date, adding that the company is “very much hoping that as a very strong ally of the U.S., trade between New Zealand and the U.S. will not be affected. We are currently reviewing an option to undertake some manufacturing in the States in 2020 to further support our American team.”

U.S. retail sales remained sturdy. The Commerce Department says sales rose 0.4 percent in June, and with gasoline sales removed from total purchases, the increase was even at higher 0.7 percent.

“The retail sales data … gives you comfort that the domestic economy is in good shape and the consumer is in a good spot,” Michael Gapen, chief U.S. economist at Barclays, told Bloomberg. “Business spending, business confidence and manufacturing production are where the economy is slowing, and if the Fed is looking to insulate the economy, some [rate] cuts to support financial market conditions and keep the domestic economy strong is still a reasonable response.”

Retail sales also rose 0.4 percent in April and May.

The mood among America’s small businesses was modestly less optimistic in June. The Small Business Optimism Index of the National Federation of Independent Business declined 1.7 points, to 103.3. “Small-business owners curbed spending, sales expectations and profits both fell, and the outlook for expansion dampened [in June],” NFIB president and CEO Juanita D. Duggan said in a statement. “When you add difficulty finding qualified workers and harmful state-level laws and regulations, you’re left with a volatile mix where uncertainty has increased to levels not seen in more than two years.”

The NFIB says capital spending plans and reports of actual spending fell in June, reversing the gains of the previous month. “As expectations for sales gains and the general business environment faded, uncertainty levels increased,” NFIB chief economist William Dunkelberg said in a statement. “Still, job openings and plans to create jobs remain historically very strong, and while it’s not as ‘hot’ as May, Main Street is still running strong.”

In housing, builder confidence for new single-family homes remained steady in July, rising by one point, to 65, on the National Association of Home Builders/Wells Fargo Housing Market Index. The NAHB said it was the sixth consecutive month that sentiment levels have been in the low to mid-60s. Any number above 50 indicates that more builders see conditions as good than see them as poor.

The Commerce Department said new-home sales rebounded in June, rising 7 percent to a seasonally adjusted annual rate of 646,000. It was the first gain in three months. “Builders report solid demand for single-family homes. However, they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points, relative to buyer incomes,” NAHB chairman Greg Ugalde, a home builder and developer from Torrington, Conn., said in a statement.

“Even as builders try to rein in costs, home prices continue to outpace incomes,” NAHB chief economist Robert Dietz said in a statement. “The current low-mortgage-interest-rate environment should be getting more buyers off the sidelines, but they remain hesitant due to affordability concerns. Still, attractive rates should help spur new-home purchases in large metro suburban markets, where approximately one-third of new construction takes place.”

All of the HMI indices rose slightly in July. The index that measures current sales conditions rose one point, to 72; the component that gauges expectations in the next six months moved a single point higher, to 71; and the metric that charts buyer traffic increased one point, to 48.

The National Association of Realtors said existing-home sales fell 1.7 percent in June to a seasonally adjusted annual pace of 5.27 million, down from 5.36 million in May. “Home sales are running at a pace similar to 2015 levels, even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country,” Lawrence Yun, NAR’s chief economist, said in a statement.

Yun said the country has a housing shortage. “Imbalance persists for mid- to lower-priced homes, with solid demand and insufficient supply, which is consequently pushing up home prices,” he said in the statement.

The NAR said the median existing-home price in June reached an all-time high of $285,700, up 4.3 percent from June 2018. The June increase marked the 88th successive month of year-over-year gains. 

This article originally appeared in the September 2019 issue.

Related