Rounding the Last Bend?

As all segments of the economy race to surpass prepandemic levels, a bit of wheelspin is expected to occur, but not for long
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A key measure of consumer confidence remained high in May, although it was virtually flat, and the United States added 559,000 jobs during the month as the economy continued its recovery from the Covid-19 pandemic.

The Conference Board reported that its Consumer Confidence Index was steady, at 117.2, down slightly from a revised 117.5 the previous month.

“After rebounding sharply in recent months, U.S. consumer confidence was essentially unchanged in May,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “Consumers’ assessment of present-day conditions improved, suggesting economic growth remains robust in Q2. However, consumers’ short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead.

“Consumers were also less upbeat this month about their income prospects — a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded Child Tax Credit payments begin reaching parents in July,” Franco added. “Overall, consumers remain optimistic, and confidence should remain resilient in the short term as vaccination rates climb, Covid-19 cases decline further and the economy fully reopens.”

Another important gauge of consumer confidence was lower in May. The University of Michigan reported that its Consumer Sentiment Index fell from 88.3 in April to 82.9.

“It is hardly surprising that the resurgent strength of the economy produced more immediate gains in demand than supply, causing consumers to expect a surge in inflation,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “Record proportions of consumers reported higher prices across a wide range of discretionary purchases, including homes, vehicles and household durables — the average change in May vastly exceeds all prior monthly changes. The impact of higher prices on discretionary spending will be offset by the more than $2 trillion increase in savings in the past year, as well as by improving job prospects. An all-time peak proportion of consumers anticipated declines in the national unemployment rate during the year ahead.

“While higher inflation will diminish real incomes, the gains in spending will nonetheless be substantial,” Curtin added. “The key issue is whether the timing of spending decisions will advance due to the expected price increases.”

The unemployment rate fell to 5.8 percent in May — the lowest rate since the pandemic started — but the national job gain figure missed economists’ expectations as many positions went unfilled. Some experts blamed generous unemployment benefits for keeping unemployed people on the sidelines.

“There are still a lot of people unemployed, but there does not seem to be a lot of eagerness to work,” Chris Low, chief economist at FHN Financial in New York, told Reuters. “There would have been many more hires if employers could find more people.”

Michelle Meyer, head of U.S. economics at Bank of America Corp., told Bloomberg: “On the surface, yes, the jobs numbers were strong. A half-million jobs is obviously a good thing. But given where we are in the economy, all else equal, it could have been stronger. The fact that it wasn’t is likely a function in large part to supply constraints and labor shortages.”

The U.S. Department of Labor reported that employment in the leisure and hospitality industries increased by 292,000 in May as pandemic restrictions eased. Many of those jobs (186,000) were in restaurants and bars.

The government also reported that employment rose by 53,000 in local government education, by 50,000 in state government education, and by 41,000 in private education. Health care and social assistance added 46,000 jobs in May.

Justin Roem, managing member of GA Communications LLC, which distributes Glomex products to the Americas as Glomex Americas, says there is potential for economic growth the rest of the year and beyond.

“Key factors in determining the level of growth include continued progress in combating the Covid-19 pandemic, opening the international community as it pertains to the pandemic — which will, in turn, open sales and supply channels — and bipartisan infrastructure legislation with support from the current administration,” Roem says.

The Baltimore-based supplier serves the marine OEM and aftermarket sectors, offering VHF radio, AIS, single sideband, AM/FM and television antennas; Internet and cellular devices; and Internet-of-Things solutions through the ZigBoat system.

“Despite the slowdown in the first half of 2020, we experienced steady growth compared to 2019,” he says. “So far in 2021, growth is more significant. With new sales strategies, strong growth in the marine market and expansion into new market sectors, we project more than 40 percent growth in revenue compared to 2020.”

He most closely watches new boat sales and consumer confidence as he assesses his company’s chances for success. “Consumer confidence is critical, as is a combination of housing, spending and job gains,” he says.

The U.S. Department of Commerce reported that consumer spending rose by a moderate 0.5 percent in April, far below the 4.7 percent pace of the prior month, which was influenced by the government’s $1,400 pandemic stimulus payments. Personal
incomes fell 13.1 percent, also because stimulus payments ended.

Inflation rose. The Personal Consumption Expenditures Price Index — the Federal Reserve’s favored measure of inflation — was up 0.6 percent in April. That lifted the average for the 12-month period that ended in April to 3.6 percent, the highest level in 13 years.

The Conference Board reported that its Leading Economic Index rose 1.6 percent in April, to 113.3, after a 1.3 percent increase in March and a decline of 0.1 percent in February. The index attempts to predict future economic activity.

“With April’s large monthly gain to start the second quarter, the U.S. LEI has now recovered fully from its Covid-19 contraction — surpassing the index’s previous peak, reached at the very onset of the global pandemic in January 2020,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “While employment and production have not recovered to their prepandemic levels yet, the U.S. LEI suggests the economy’s upward trend should continue, and growth may even accelerate in the near term. The Conference Board now forecasts real GDP could grow around 8 to 9 percent (annualized) in the second quarter, with year-over-year economic growth reaching 6.4 percent for 2021.”

The mood among the nation’s small businesses improved in April. The National Federation of Independent Business reported that its Small Business Optimism Index rose 1.6 points, to 99.8.

The NFIB also reported that while the index has risen 4.8 points since January, a record 44 percent of business owners reported job openings that they could not fill.

“Small business owners are seeing a growth in sales, but are stunted by not having enough workers,” NFIB chief economist Bill Dunkelberg stated in a press release. “Finding qualified employees remains the biggest challenge for small businesses and is slowing economic growth. Owners are raising compensation, offering bonuses and benefits to attract the right employees.”

Confidence among the nation’s home builders held steady in May. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index was 83, unchanged from the previous month.

“Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates and a growing demographic of prospective home buyers,” NAHB chairman Chuck Fowke stated in a press release. “However, first-time and first-generation home buyers are particularly at risk for losing a purchase due to cost hikes associated with increasingly scarce material availability. Policy-makers must take note and find ways to increase production of domestic building materials, including lumber and steel, and suspend tariffs on imports of construction materials.”

NAHB chief economist Robert Dietz agreed: “Low interest rates are supporting housing affordability in a market where the cost of most materials is rising. In recent months, aggregate residential construction material costs were up 12 percent year over year, and our surveys suggest those costs are rising further. Some builders are slowing sales to manage their own supply chains, which means growing affordability challenges for a market in critical need of more inventory.”

The HMI index that gauges current sales conditions held steady at 88; the gauge that charts sales expectations in the next six months rose one point, to 81; and the component that measures the traffic of prospective buyers fell one point, to 73.

(Any number over 50 indicates that more builders view conditions as good rather than poor.)

The Commerce Department reported that new home sales totaled 863,000 at a seasonally adjusted annual rate in April, down 5.9 percent from a downwardly revised March figure of 917,000.

Home resales were also lower in April. The National Association of Realtors reported that sales fell 2.7 percent from March to a seasonally adjusted 5.85 million in April. It was the third consecutive month in which sales declined.

“Home sales were down again in April from the prior month, as housing supply continues to fall short of demand,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “We’ll see more inventory come to the market later this year as further Covid-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes. The falling number of homeowners in mortgage forbearance will also bring about more inventory.

“Despite the decline, housing demand is still strong compared to one year ago, evidenced by home sales from this January to April, which are up 20 percent compared to 2020,” Yun added. “The additional supply projected for the market should cool down the torrid pace of price appreciation later in the year.” 

This article was originally published in the July 2021 issue.

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