The U.S. economy added 661,000 jobs in September, the fewest in any month since May, but consumer confidence showed increasing strength amid the ongoing Covid-19 pandemic.
The unemployment rate fell to 7.9 percent in what was the last employment report before the November presidential election. “The jobs number is positive, but it’s flashing warning signs,” Ernie Tedeschi, a former Treasury Department economist, told The Washington Post. “It’s decelerating fast, and that worries me. If job growth is slowing, it’s going to take us longer and longer to recover from this recession.”
The Consumer Confidence Index, meanwhile, climbed to 101.8 in September from 86.3 in August. It was the highest reading since the pandemic began.
“Consumer confidence increased sharply in September, after back-to-back monthly declines, but remains below prepandemic levels,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “A more favorable view of current business and labor market conditions, coupled with renewed optimism about the short-term outlook, helped spur this month’s rebound in confidence. Consumers also expressed greater optimism about their short-term financial prospects, which may help keep spending from slowing further in the months ahead.”
Separately, the University of Michigan’s Consumer Sentiment Index rose in September to 80.4, up from August’s reading of 74.1. “Consumer sentiment continued to improve in late September, with the Sentiment Index reaching its highest level in six months,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “The gains were mainly due to a more optimistic outlook for the national economy. While consumers have anticipated gains in the national economy ever since the April shutdown, the September survey recorded a significant increase in the proportion that expected a re-establishment of good times financially in the overall economy.
“The recent gains are encouraging, even though they were largely due to upper-income households,” Curtin added. “Indeed, the data indicate that lower-income households face continued income and job losses, compared with the modest gains expected by upper- income households. Without a renewed federal stimulus and enhanced unemployment payments, the income gap will widen.”
The U.S. Labor Department reported that the number of unemployed Americans was still high, at 12.6 million in September, although there were notable job gains in leisure and hospitality (318,000, including 200,000 in food services and at drinking establishments), retail trade (142,000), health care and social assistance (108,000), and professional and business services (89,000). The department also reported that hourly earnings rose by 2 cents, to $29.47.
Todd Hart, president of Flow-Rite, says the pandemic has changed the way his vertically integrated company operates. The Byron Center, Mich.-based company makes injection-molded fluid control components for the marine industry. “To safeguard our employees against Covid-19, we have added multiple safety precautions throughout the office and production floor,” Hart says. “Some of these include limiting visitors [and] building occupancy through scheduling, and the number of people in the cafeteria at any given time. Additionally, we have implemented online meetings, required masks to be worn throughout the building, reconfigured the spacing of work stations, and added temperature screenings and prework health surveys.
“To limit capacity, we currently have about two-thirds of our office personnel on a rotating schedule,” he adds.
Hart sees U.S. economic indicators as a mixed bag. “Throughout our verticals, there has been softening in some areas, while we have seen strengthening in others,” he says, adding that he focuses on consumer confidence, the housing market, the percentage of on-time loans and jobs.
Another factor he has been watching is diminished dealer inventory, “which tells us that manufacturers will be getting busy to keep up.” Flow-Rite’s export markets, he says, “are bouncing back quickly, as their economies reopen faster due to quicker, more precise action to control the Covid-19 pandemic.” His company is also enduring the effects of President Trump’s tariffs, including in the Canadian market.
The Federal Reserve, at a policy meeting in mid-September, said it would keep the benchmark federal funds rate near zero for the foreseeable future, until inflation rises on a consistent basis. The Fed signaled that its rate could stay at that low level until 2023. “This very strong, very powerful guidance shows both our confidence and our determination,” Powell said after the two-day meeting.
The U.S. Commerce Department reported that consumer spending rose 1 percent in August and that spending rose for the fourth month in a row. That’s despite a drop of 2.7 percent in personal income for the month, the result of the expiration of an extra $600 monthly benefit that Congress previously approved for the unemployed.
Inflation, as measured by the Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge, rose by a sharp 0.3 percent in August. The core rate of inflation, which strips out the volatile food and energy sectors, was also up 0.3 percent. The yearly rate of inflation remained low, at 1.4 percent.
The Conference Board’s Leading Economic Index rose 1.2 percent in August, to 106.5, after larger increases in July and June. The index attempts to predict future economic activity. “While the U.S. LEI increased again in August, the slowing pace of improvement suggests that this summer’s economic rebound may be losing steam heading into the final stretch of 2020,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “Despite the improvement, the LEI remains in recession territory, still 4.7 percent below its February level. Weakening in new orders for capital goods, residential construction, consumers’ outlook and financial conditions point to increasing downside risks to the economic recovery. Looking ahead to 2021, the LEI suggests that the U.S. economy will start the new year under substantially weakened economic conditions.”
Confidence among small businesses climbed in August. The Small Business Optimism Index of the National Federation of Independent Business rose 1.4 points, to 100.2, a reading that the NFIB said was slightly above the historical average.
“Small businesses are working hard to recover from the state shutdowns and effects of Covid-19,” NFIB chief economist Bill Dunkelberg stated in a press release. “We are seeing areas of improvement in the small-business economy, as job openings and plans to hire are increasing, but many small businesses are still struggling and are uncertain about what the future will hold.”
In the housing market, builder confidence in the market for single-family homes rose five points, to 83, in September on the National Association of Home Builders/Wells Fargo Housing Market Index. The reading was the highest in the 35-year history of the index.
“Historic traffic numbers have builders seeing positive market conditions, but many in the industry are worried about rising costs and delays for building materials, especially lumber,” NAHB chairman Chuck Fowke, a custom home builder from Tampa, Fla., stated in a press release. “More domestic lumber production or tariff relief is needed to avoid a slowdown in the market in the coming months.”
NAHB chief economist Robert Dietz added: “Lumber prices are now up more than 170 percent since mid-April, adding more than $16,000 to the price of a typical new single-family home. That said, the suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates. In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.”
All the HMI indexes had their highest readings ever in September. The index that gauges current sales conditions rose four points, to 88; the component that measures sales expectations in the next six months increased six points, to 84; and the measure that charts the traffic of prospective buyers had a nine-point gain, to 73. Any number above 50 on the HMI indexes indicates that builders see conditions as good rather than poor.
The Commerce Department reported that sales of new single-family homes rose in August to a seasonally adjusted annual rate of 1.01 million, up 4.8 percent from July. It was the first time since 2006 that sales exceeded an annual rate of 1 million.The market for existing homes was also strong in August. The National Association of Realtors reported that sales rose 2.4 percent from July to a seasonally adjusted annual rate of 6 million. The sales pace was the fastest since 2006.
“Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3 percent and with continued job recovery.”
The median existing-home price in August was $310,600, up 11.4 percent from August 2019, as prices rose in every region of the country. The NAR reported that the August price increase marked 102 consecutive months of year-over-year gains.
This article was originally published in the November 2020 issue.