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The Calm Before the Storm?

Although key measures continued on an upward trajectory, the overall outlook for 2020 remains volatile
The path to recovery is uncertain and uneven.

The path to recovery is uncertain and uneven.

Consumer confidence rose to a three-month high in June, and the economy added 4.8 million jobs as the nation continued its effort to recover in the face of a resurgent Covid-19 pandemic. The Conference Board reported that its Consumer Confidence Index rose to 98.1 from a revised 85.9 in May. “Consumer confidence partially rebounded in June but remains well below prepandemic levels,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release.

“The reopening of the economy and relative improvement in unemployment claims helped improve consumers’ assessment of current conditions, but the Present Situation Index suggests that economic conditions remain weak,” Franco added. “Looking ahead, consumers are less pessimistic about the short-term outlook but do not foresee a significant pickup in economic activity. Faced with an uncertain and uneven path to recovery, and a potential Covid-19 resurgence, it’s too soon to say that consumers have turned the corner and are ready to begin spending at prepandemic levels.”

Another key measure of consumer confidence also showed improvement in June. The University of Michigan’s Consumer Sentiment Index rose to 78.1 from 72.3 in May. “Consumer sentiment slipped in the last half of June, although it still recorded its second monthly gain over the April low,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “While most consumers believe that economic conditions could hardly worsen from the recent shutdown of the national economy, prospective growth in the economy is more closely tied to progress against the coronavirus. The early reopening of the economy has undoubtedly restored jobs and incomes, but it has come at the probable cost of an uptick in the spread of the virus.

“The resurgence of the virus will be accompanied by weaker consumer demand among residents of the southern and western regions, and may even temper the reactions of consumers in the Northeast,” Curtin added. “As a result, the need for additional fiscal policies to relieve financial hardships has risen. Unfortunately, confidence in government economic policies has fallen in the June survey to its lowest level since [President] Trump entered office.”

The 4.8 million new jobs were a record-high number, but they still left the country with a jobless rate of 11.1 percent. The U.S. Department of Labor reported that the number of unemployed people fell by 3.2 million, to 17.8 million.

“June may be the calm before the storm,” Chris Rupkey, chief economist at MUFG Union Bank in New York, told Reuters. “We cannot be sure the labor market recovery will continue at a speed that is sufficient to put the millions and millions of Americans made jobless in this recession back to work.”

Federal Reserve Chairman Jerome Powell said at the end of June that the economic outlook was still “extraordinarily uncertain.” He told the U.S. House of Representatives Financial Services Committee: “A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”

The Labor Department reported that employment in leisure and hospitality rose sharply (2.1 million) in June and that notable job gains occurred in retail trade (740,000), education and health services (568,000), manufacturing (356,000) and professional and business services (306,000). Average hourly earnings for all employees on private, non-farm payrolls fell by 35 cents to $29.37.

Ken Smaga, vice president of ComMar Sales, a marine representation company, says the pandemic is having an “evolving” effect on the way his company does business. ComMar’s relationships range from the largest boatbuilders and distributors to its marine industry core of hundreds of small builders, retailers and boatyards.

“Face-to-face meetings turn into a Zoom meeting. A handshake is a fist bump. That is what we see on the surface, but the information and knowledge still have to be shared and trust built,” says Smaga, a member of the National Marine Manufacturers Association’s Marine Accessories and Components Division, and a past president of the National Marine Representatives Association. “All of us are getting more comfortable in the new platforms we are using since the coronavirus landed in our offices, marinas, yards and factories.”

Smaga says all the potential recovery scenarios for the economy “point toward Fed policy that will yield continued low interest rates. Continued low interest rates with current increases in discretionary income are all very bullish for our industry.”

While the U.S. economy will continue to challenge many industries, he adds, recreational boating will benefit from some positive effects. With children out of school longer, with team sports shut down, with travel being limited, and with parents working from home with more flexible time, “What better safe outdoor experience than a day on a boat?”

He also says low interest rates should yield more affordable boating. “Time for all of us to step up our game and introduce new products to attract new boaters,” he says. “We need to support our industry through Boating United and your local marine industry association. While we have a few economic tailwinds, now is the time our voices need to be heard to keep waterway access open, water clean and not unnecessarily restricted.”

Ken Smaga

Ken Smaga

Smaga says the RV industry has been a reliable early indicator for the marine industry for years. “The great news for us is that May has been a home run for RV sales,” he says. “Thor Industries recorded record sales for the most recent quarter. The marine industry is following right behind. Anecdotal data from this marine rep who has insight into small and large boatbuilder sales: May has surprised most OEMs with sales demand.”

Consumer spending was indeed on the rebound in May. The U.S. Department of Commerce reported that spending climbed 8.2 percent, a record, as business reopenings in many states encouraged consumers to release pent-up demand. In another encouraging development, The Conference Board’s Leading Economic Index rose 2.8 percent in May after declines of 6.1 percent in April and 7.5 percent in March.

“In May, the U.S. LEI showed a partial recovery from its sharp decline over the previous three months, as economic activity began to pick up again,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release.

“The relative improvement in unemployment insurance claims is responsible for about two-thirds of the gain in the index,” he added. “The improvements in labor markets, housing permits and stock prices also buoyed the LEI, but new orders in manufacturing, consumers’ outlook on the economy and the Leading Credit Index still point to weak economic conditions. The breadth and depth of the decline in the LEI between February and April suggest the economy at large will remain in recession territory in the near term.”

The Commerce Department reported that inflation was minimal in May, rising just 0.1 percent. The rate of inflation, as measured by the Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge, slipped to 0.5 percent over the previous 12 months, from 0.6 percent in April. Both figures are well below the Fed’s target rate of 2 percent.

Confidence among the nation’s small businesses improved in May. The Small Business Optimism Index of the National Federation of Independent Business rose 3.5 points, to 94.4. The NFIB reported that business owners were optimistic and expected the coronavirus-triggered recession to be short-lived.

“As states begin to reopen, small businesses continue to navigate the economic landscape rocked by Covid-19 and new government policies,” NFIB chief economist Bill Dunkelberg stated in a press release. “It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”

The housing market showed a continuing sign of recovery in June when the National Association of Home Builders said builder confidence in the market for newly built, single-family homes increased 21 points to 58. According to the NAHB, any reading over 50 indicates a positive market. The index had risen seven points in May after a 42-point drop the previous month that was the largest single decline in the history of the NAHB/Wells Fargo Housing Market Index.

“As the nation reopens, housing is well-positioned to lead the economy forward,” NAHB chairman Dean Mon stated in a press release. “Inventory is tight, mortgage applications are increasing, interest rates are low, and confidence is rising. And buyer traffic more than doubled in one month, even as builders report growing online and phone inquiries stemming from the outbreak.”

“Housing clearly shows signs of momentum as challenges and opportunities exist in the single-family market,” NAHB chief economist Robert Dietz stated in a press release. “Builders report increasing demand for families seeking single-family homes in inner and outer suburbs that feature lower-density neighborhoods. At the same time, elevated unemployment and the risk of new, local virus outbreaks remain a risk to the housing market.”

The NAHB reported that all of the Housing Market Index indices moved higher in June. The index that gauges current sales conditions jumped 21 points to 63; the component that measures sales expectations in the next six months surged 22 points to 68; and the measure that charts the traffic of prospective buyers climbed 22 points to 43.

The Commerce Department reported that sales of new single-family homes jumped in May, rising 16.6 percent to a seasonally adjusted annual rate of 676,000. The increase was from a downwardly revised rate of 580,000 in April. By area of the country, sales were up 45.5 percent in the Northeast, 29 percent in the West and 15.2 percent in the South. Sales in the Midwest were 6.4 percent lower. The median sale price for homes was $317,900.

Existing-home sales were a different story. The National Association of Realtors reported that sales fell 9.7 percent from April to a seasonally adjusted annual rate of 3.91 million in May. “Sales completed in May reflect contract signings in March and April — during the strictest times of the pandemic lockdown, hence the cyclical low point,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “Home sales will surely rise in the upcoming months with the economy reopening and could even surpass one-year-ago figures in the second half of the year.”

The median existing-home price in April was $284,600, up 2.3 percent from the same month a year earlier, as prices increased in every region of the country. The price increase marks 99 straight months of year-over-year gains. 

This article originally appeared in the August 2020 issue.



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