An important measure of consumer confidence slipped in December, but the economy created 312,000 jobs during the month, and wages rose. The unemployment rate edged up to 3.9 percent from 3.7 percent in November, but experts say that was because 400,000 more people began to look for work, believing they would find jobs in the still-growing economy.
“You’re bringing people back into the labor force,” Joseph Brusuelas, chief economist at RSM, an international consulting firm, told The Washington Post. “That’s a good thing.”
The surprisingly high December job total easily exceeded analysts’ expectations. “The jump in payrolls in December would seem to make a mockery of market fears of an impending recession,” Paul Ashworth, chief economist at Capital Economics in Toronto, told Reuters. “This employment report suggests the U.S. economy still has considerable forward momentum.”
The Labor Department reported that the economy added significant numbers of jobs in health care (50,000), professional and business services (43,000), construction (38,000) and manufacturing (32,000) in December.
The government also revised upward its job numbers for October and November, to show a total of 58,000 more jobs created than previously reported. The economy created 2.6 million jobs in 2018, compared with 2.2 million the previous year.
Average hourly wages, which have been slow to grow in the years that followed the Great Recession, rose an encouraging 3.2 percent from December 2017. All in all, the numbers represent a strong showing that buoyed recreational marine executives such as Jay Keenan, president and CEO of Global Ocean Security Technologies, which makes security, tracking, monitoring and video surveillance systems. Keenan says he sees the economy as very healthy, with “super-low unemployment, GDP trending positively, consumer spending high, consumer confidence high” and the housing industry doing well, despite the rate increase the Federal Reserve approved in December.
Keenan says he has found that the best way to judge the economy, “or at least that which applies to our end of the marine market, [is] from what our existing and future clients tell us at the boat shows, as well as how the market is doing from what we hear from both the OEM side of the market, the brokers, but also on the aftermarket side. From everything we have seen and heard at the shows,  has been extremely positive.”
Keenan said in December that GOST, which was founded in 2005, had its biggest year in 2018, passing 2017’s year-end revenue and profit total during the first three quarters. “We are constantly innovating and pushing the envelope further and further, not only in what is available today but what will be available in both the near term to as much as a decade into the future,” he says. “Therefore, R&D is one of our largest expenditures, and how we come out with new generations of systems or apps so frequently. This is super-important due to the extremely fast pace of the tech industry and of electronics in general.”
Keenan says GOST has grown sales and profits by an average of 15 to 20 percent a year since the company was founded and had much larger increases during the Great Recession, “which was around the time we really saw an increase in boat theft, as well as electronics, outboard motor or other theft — that is, fishing rods, lower units, alcohol, bikes and anything not tied down and/or permanently attached.”
He says GOST has found that traditional economic indicators don’t directly correlate to its sales numbers or have much of an impact on the company’s typical clientele. “What we came to realize is that at the top end of the market — those who own yachts — still had disposable income to spend,” he says.
Keenan says President Trump’s tariffs have had no direct effect on GOST’s business. “I feel that while [trade] negotiations are still underway, everyone is on edge due to the unknowns and, therefore, may be waiting to pull the trigger on large expenditures until the deals are all signed and in place,” he says.
Two key measures of U.S. consumers’ confidence produced differing results in December. The Conference Board’s Consumer Confidence Index fell by 8 points, dropping to 128.1 from 136.4 in November. The December reading was the lowest for the index since July.
“Consumer confidence decreased in December following a moderate decline in November,” Lynn Franco, senior director of economic indicators at The Conference Board, says in a statement. “Expectations regarding job prospects and business conditions weakened but still suggest that the economy will continue expanding at a solid pace in the short term. While consumers [ended] 2018 on a strong note, back-to-back declines in expectations are reflective of an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”
The University of Michigan’s Consumer Sentiment Index fared better in December, rising to 98.3 from 97.5 in November. “Consumer confidence remained in December at the same record favorable levels as it has throughout the year,” says Richard Curtin, chief economist of the university’s Surveys of Consumers. “The Sentiment Index averaged 98.4 in 2018, the best year since 107.6 in 2000. Over the past half century, sentiment was higher in only two other time periods: 1964-65 and 1997-2000. These periods correspond to the two longest prior expansions since the mid-1800s. If the current expansion lasts past mid-2019, as is likely, based on current data, it will become the longest expansion ever recorded.
“While the plunge in stock prices has recently garnered the most attention in the national press, consumers have focused more on their concerns about income and job prospects,” Curtin adds. “Consumers reported more negative than positive news about job prospects for the first time in two years, with the shift widespread across socioeconomic subgroups. When asked about prospects for the national unemployment rate, 30 percent expected increases, up from [November’s] 22 percent and the highest percentage in two years. Importantly, this still meant that 70 percent anticipated no increase in unemployment in the year ahead.”
The drop in the Consumer Confidence Index “is not a disaster, as the level of the headline gauge is merely back to near where it spent the first seven months of this year,” Stephen Stanley, chief economist at Amherst Pierpont Securities, wrote in a note quoted in a Bloomberg report. “However, it will definitely be worthwhile to keep a close eye on the various measures of consumer attitudes over the next few months to get a feel for whether and how the dive in stock prices might be affecting consumers’ collective psyche.”
The Conference Board’s Leading Economic Index rose 0.2 percent in November, to 111.8, after declining 0.3 percent in October and rising 0.6 percent in September. The index attempts to predict future economic activity. “The LEI increased slightly in November, but its overall pace of improvement has slowed in the last two months,” Ataman Ozyildirim, director of economic research at The Conference Board, says in a statement. “Despite the recent volatility in stock prices, the strengths among the leading indicators have been widespread. Solid GDP growth at about 2.8 percent should continue in early 2019, but the LEI suggests the economy is likely to moderate further in the second half of 2019.”
Inflation, as measured by the core Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation gauge, rose to a yearly rate of 1.9 percent in November, which was the highest in three months. The core rate excludes volatile food and energy prices.
On Dec. 19 the Federal Reserve bucked Trump and 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. The action will lead to increases in the rates that consumers pay. But the central bank, which predicted last fall that it would raise rates three times in 2019, forecast just two rate increases in a statement after the Dec. 18-19 meeting of its rate-setting Federal Open Market Committee.
“There’s significant uncertainty about … both the path and the ultimate destination of any further rate increases,” Federal Reserve chairman Jerome Powell said during a news conference Dec. 19 after the central bank released its statement announcing the latest rate increase. “Inflation has still remained just a touch below 2 percent. So I do think that gives the [Federal Open Market Committee] the ability to be patient in moving forward.”
The Federal Reserve lowered its forecast for economic growth in 2019 from 2.5 to 2.3 percent and said it was closely watching developments in the global economy and financial markets. “Our forecast for  is we’ll still have solid growth, declining unemployment and a healthy economy,” Powell said at the news conference.
“The Fed is now acknowledging some of the early signs of weakness in the economy,” Lindsey Piegza, chief economist for Stifel Fixed Income, told The Washington Post. “Fed officials see the expansion slowing and potentially coming to an end, so there is no longer a need going forward for aggressive hikes like we had in 2017 and 2018.”
In the housing market, existing-home sales rose in November for the second month in a row, but home-builder confidence declined. Data on new-home sales for November were not available from the Commerce Department because of the partial government shutdown.
The National Association of Realtors reported that home resales increased 1.9 percent from October, to a seasonally adjusted annual rate of 5.32 million. On a year-over-year basis, sales were down 7 percent from 5.72 million in November 2017. “The trend in housing is clearly slowing as affordability takes a bite,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, told Reuters.
Sales rose 7.2 percent in the Northeast, 5.5 percent in the Midwest and 2.3 percent in the South, but they fell 6.3 percent in the West. NAR chief economist Lawrence Yun welcomed the overall increase. “The market conditions in November were mixed, with good signs of stabilizing home sales compared to recent months, though down significantly from one year ago,” Yun says in a statement. “Rising inventory is clearly taming home price appreciation.”
The median existing-home price in November was $257,700, up 4.2 percent from $247,200 in the same month a year earlier. The November increase marked the 81st consecutive month of year-over-year gains.
The Commerce Department reported that housing starts rose 3.2 percent in November from the month before, to a seasonally adjusted annual rate of 1.256 million. Housing permits were up 5 percent, to a 1.328 million annual pace, also from October.
Builder confidence in the market for newly built single-family homes fell four points, to 56, in December on the National Association of Home Builders/Wells Fargo Housing Market Index amid persistent concerns about affordability. Any index reading above 50 indicates that more builders see conditions as good rather than poor.
All of the housing market indices posted declines. The index measuring current sales conditions fell six points, to 61; the component gauging expectations in the next six months dropped four points, also to 61; and the metric charting buyer traffic edged down two points, to 43. “We are hearing from builders that consumer demand exists but that customers are hesitating to make a purchase because of rising home costs,” National Association of Home Builders chairman Randy Noel says in a statement. “However, recent declines in mortgage interest rates should help move the market forward in early 2019.”
NAHB chief economist Robert Dietz adds: “The fact that builder confidence dropped significantly in areas of the country with high home prices shows how the growing housing affordability crisis is hurting the market. This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points.”
This article originally appeared in the February 2019 issue.