Market Flux, Shutdown Dampen Confidence

Analysts say such “shock events” typically don’t foreshadow a prolonged slowdown
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Following a record 2018, HydroHoist Marine Group CEO Mick Webber expects double-digit growth for his company through 2020.

Following a record 2018, HydroHoist Marine Group CEO Mick Webber expects double-digit growth for his company through 2020.

A key measure of consumer confidence slipped in January, but U.S. employers retained confidence in the economy, adding 304,000 jobs, the most since February 2018, and marking the 100th consecutive month of job gains.

The job growth easily topped economists’ expectations. The unemployment rate edged up from 3.9 percent in December to 4 percent in January, with the Department of Labor reporting that the partial federal government shutdown contributed to the increase.

The Conference Board’s Consumer Confidence Index fell to 120.2 in January from 126.6 in December. “Consumer confidence declined in January, following a decrease in December,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “The Present Situation Index was virtually unchanged, suggesting economic conditions remain favorable. Expectations, however, declined sharply as financial market volatility and the government shutdown appear to have impacted consumers. Shock events such as government shutdowns … tend to have sharp but temporary impacts on consumer confidence. Thus, it appears that [January’s] decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months.”

The jobs report showed that the 35-day government shutdown, which ended Jan. 25, did not cause employers to lose their appetites for hiring. The Labor Department reported that the economy added 74,000 jobs in January in the leisure and hospitality category, 52,000 in construction, 42,000 in health care, 30,000 in professional and business services, 27,000 in transportation and warehousing, and 21,000 in retail trade employment.

The government revised its job numbers from November upward by 20,000 and revised December downward by 90,000. Nonetheless, the average number of jobs created for the past three months was a solid 241,000.

Average hourly earnings rose 0.1 percent for the month, slower than in recent months. However, they were up an encouraging 3.2 percent from January of last year.

The Consumer Confidence Index was not the only indicator of the public’s mood turning downward in January. The University of Michigan’s Consumer Sentiment Index fell to 91.2 from 98.3 in December, its lowest reading since President Trump was elected. “Continued strength in consumer spending is essential, especially given the volatile financial markets and weakened global growth prospects,” Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement. “It is of some importance to note that consumers still viewed their financial prospects quite positively. Nonetheless, consumers were not as optimistic about future job gains, which was a consequence of the expected weakening of the economy due to the shutdown.”

Mick Webber, CEO of HydroHoist Marine Group, the parent company of HydroHoist Boat Lifts, says the U.S. economy, particularly a “strong and healthy” marine economy, should continue to create opportunities. “The U.S. economy has followed the recent global slowdown. However, most economists do not see a recession in the next couple of years, but rather a return to normalcy from the impressive pace of 2017-18,” Webber says. “HydroHoist sees excellent opportunities ahead with significant product releases targeting salt water and the refreshing of our legacy freshwater products.”

Webber says HydroHoist follows a variety of economic indicators. “The basics we watch are interest rates, inflation, [the consumer price index], U.S. consumer debt, consumer and business confidence, housing starts, the Dow and S&P, national average gas and diesel pricing, and, specific to our business, West Texas Intermediate [crude oil], natural gas, polyethylene, steel and aluminum prices,” he says.

“The first group gives a general picture of the economy, and the second group focuses on our key raw materials,” Webber adds. “We use the combination of these indicator groups to project consumer discretionary spending and manufacturing costs, to fine-tune production and sales targets.”

Webber says HydroHoist has had a strong run since 2015, with 2018 showing the strongest growth in the company’s 54-year history. Assessing the economy for 2019, Webber says, “We expect to see a general economic slowdown across the board. However, the U.S. still boasts a strong and healthy marine economy. The baby boomers lead a more active lifestyle than the previous generation and certainly are more affluent than any previous retiree segment. We are confident that double-digit growth will continue through 2020, thanks to a favorable economy and key product releases targeting the saltwater and international markets.”

Webber acknowledges that President Trump’s tariffs have hurt HydroHoist. “The tariffs have negatively impacted HydroHoist on aluminum and steel pricing, along with certain cast components, which we subsequently shifted out of China,” he says. “We believe the logjam will break relatively soon and the tariff issue will mostly be resolved if the Trump administration is satisfied that mechanisms are in place to slow or lessen intellectual property piracy.”

The course of interest rates now appears to be a lesser concern for employers. The Federal Reserve’s policy-making committee, meeting in late January, left rates alone and indicated in a policy revision that it does not plan to raise them again in the near future unless conditions change. “The case for raising rates has weakened somewhat,” Fed chairman Jerome Powell said Jan. 30, noting that U.S. inflation has been weak and that growth has slowed in China and Europe. “I would want to see a need for further rate increases.” Powell also said U.S. economic growth remained “solid.”

Even so, one economist says the Fed is underestimating the confidence that American companies still have in the economy. “The Fed chickened out on further rate hikes this year, and boy are they ever misreading the tea leaves on where the economy is going next,” Chris Rupkey, chief economist at MUFG in New York, told Reuters. “U.S. companies have not let up one bit on their hiring in response to risks out there in the world economy.”

In December, the Fed raised short-term interest rates for the fourth time in 2018, lifting the federal funds rate to a range of 2.25 to 2.5 percent. At that time, the central bank predicted that it would raise rates twice in 2019.

The Conference Board’s Leading Economic Index declined 0.1 percent in December, to 111.7, after inconsistent readings during the previous few months. It rose 0.2 percent in November, declined 0.3 percent in October, and rose 0.6 percent in September. The index attempts to predict future economic activity.

“The U.S. LEI declined slightly in December, and the recent moderation in the LEI suggests that the U.S. economic growth rate may slow down this year,” Ataman Ozyildirim, director of economic research at The Conference Board, stated in a press release. “While the effects of the government shutdown are not yet reflected here, the LEI suggests that the economy could decelerate toward 2 percent growth by the end of 2019.”

In the housing market, new-home sales rose 17 percent in November from the previous month, to a seasonally adjusted annual rate of 657,000, an eight-month high. Home-builder confidence rose slightly. “We expect a further rise in new-home sales during 2019 as home buyers look to new builds, with inventory conditions for existing homes still extremely tight,” Ben Ayers, senior economist at Nationwide in Columbus, Ohio, told Reuters.

Falling mortgage rates helped boost builder confidence in the market for newly built single-family homes. Builder sentiment rose 2 points, to 58, in January on the National Association of Home Builders/Wells Fargo Housing Market Index. Any index reading above 50 indicates that more builders see conditions as good rather than poor.

All of the indices within the Housing Market Index posted gains in January. The index measuring current sales conditions rose 2 points, to 63; the component gauging expectations in the next six months increased 3 points, to 64; and the metric charting buyer traffic edged up 1 point, to 44.

“The gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment,” NAHB chairman Randy Noel, a custom-home builder from LaPlace, La., stated in a press release. “Low unemployment, solid job growth and favorable demographics should support housing demand in the coming months.”

Added NAHB chief economist Robert Dietz: “Builders need to continue to manage rising construction costs to keep home prices affordable, particularly for young buyers at the entry level of the market. Lower interest rates that peaked around 5 percent in mid-November and have since fallen to just below 4.5 percent will help the housing market continue to grow at a modest clip as we enter the new year.”

Existing-home sales declined in December after two months of increases. The National Association of Realtors reported that home resales fell 6.4 percent from November, to a seasonally adjusted annual rate of 4.99 million — a three-year low. The NAR reported that none of the four major regions of the country saw a sales gain.

On a year-over-year basis, sales were down 10.3 percent from 5.56 million in December 2017. NAR chief economist Lawrence Yun stated in a press release that the December numbers resulted, in part, from interest rates that were higher during much of 2018.

“The housing market is obviously very sensitive to mortgage rates,” Yun said. “Softer sales in December reflected consumer search processes and contract signing activity in previous months, when mortgage rates were higher than today. Now, with mortgage rates lower, some revival in home sales is expected going into spring.”

Sales fell 11.2 percent in December in the Midwest, 6.8 percent in the Northeast, 5.4 percent in the South and 1.9 percent in the West. The NAR reported that the median existing-home price in December was $253,600, up 2.9 percent from $246,500 in December 2017. The price increase in December marked the 82nd consecutive month of year-over-year gains.

This article originally appeared in the March 2019 issue.

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