The U.S. economy added 1.4 million jobs in August, but consumer confidence was mixed in two key surveys as the country continued to battle the novel coronavirus pandemic.
The unemployment rate fell to 8.4 percent, but nearly 14 million people remained out of work, underscoring how far the economy has fallen and how much ground it still has to make up.
“We’re finally in single-digit territory — that’s a positive,” Beth Ann Bovino, chief economist at S&P Global Ratings Services, told The Washington Post. “This is a good report.”
Meanwhile, The Conference Board’s Consumer Confidence Index fell to 84.8 in August from 91.7 in July. The latest reading was a six-year low for the closely followed index.
“Consumer confidence declined in August for the second consecutive month,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “The Present Situation Index decreased sharply, with consumers stating that both business and employment conditions had deteriorated over the past month. Consumers’ optimism about the short-term outlook, and their financial prospects, also declined and continues on a downward path. Consumer spending has rebounded in recent months, but increasing concerns amongst consumers about the economic outlook and their financial well-being will likely cause spending to cool in the months ahead.”
The University of Michigan’s Consumer Sentiment Index rose in August, but only slightly, to 74.1 from 72.5 in July.
“Consumer sentiment has remained trendless in the same depressed range it has traveled during the past five months,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “The August figure posted an insignificant gain of just plus-0.4 index points above the April-to-July average. The small August gain reflected fewer concerns about the year-ahead outlook for the economy, although those prospects still remained half as favorable as six months ago.”
The job market gains did not seem to help consumer confidence as much as might be expected. The U.S. Department of Labor reported that an increase in government employment (251,000) “largely reflected temporary hiring for the 2020 census.”
What the government described as “notable” employment gains also occurred in retail trade (249,000), professional and business services (197,000), leisure and hospitality (174,000), and education and health services (147,000).
The Labor Department reported that workers’ hourly earnings rose by 11 cents, to $29.47.
Hill Lenderman, president and owner of William F. Miller & Associates, which represents parts suppliers, says the Covid-19 pandemic has significantly affected the way his company does business.
“We saw a decline in OEM sales mid-March through April due to company shutdowns,” Lenderman says. “Distributor sales, however, remained strong as existing boat owners found boating to be a safe activity. Around the beginning of May, those OEMs that shut down began reopening, and we have seen business rebound substantially. As a result, our agency is extremely busy at this point.
“Many customers welcome us through their doors — with masks and social distancing — while others prefer Zoom meetings instead,” Lenderman adds. “We have adapted our techniques and are maximizing our face time with customers by bringing a display trailer and tent to allow our customers the ability to see new products and discuss implementation face-to-face in a safe manner.”
Lenderman says he has faith in the U.S. economy, and expects business to stay strong through the end of 2020.
“I believe the U.S. economy is still stronger than most indicators show,” he says. “We have seen the healthy economy allow for new players to enter the market, as well as existing customer expansions and new product introductions. This benefits the factories we represent and, ultimately, our agency. I believe this fall and winter will allow our manufacturers the opportunity to catch their breath, and spring 2021 will take off again.”
When he analyzes the economy, Lenderman says he looks at a combination of the housing market, consumer confidence and consumer spending, “but a big key to our industry are unemployment rates, since our industry is one of the first to decline when consumer spending falls due to lesser discretionary income. Another factor is inventory levels. In 2007, 2008 and 2009, inventory in the field and at the builder level did not reflect economic reality and crushed the boat market. Today, if inventory builds at the dealer level, the industry hesitates and reacts accordingly.”
“The dealer pipeline needs to be replenished over the winter months, and OEM responses and economic indicators support this inventory replenishment,” he says. “The election will certainly have an impact in 2021, and we hope to see a president elected that continues to embrace our industry.”
Federal Reserve chairman Jerome Powell says low interest rates could be in place for years as the economy recovers from the pandemic. The Fed slashed interest rates to near zero in March and has left them there.
“The economy is now recovering,” Powell told National Public Radio. “But it’s going to be a long time, we think. We think that the economy’s going to need low interest rates, which support economic activity, for an extended period of time. It will be measured in years.”
The U.S. Department of Commerce reported that consumer spending rose 1.9 percent in July, marking the third month in a row of gains. Personal income rose 0.4 percent.
“The consumer is back spending at the shops and malls in July, but many of their purchases reflected pent-up demand following the pandemic lockdown,” Chris Rupkey, chief economist at MUFG, told Reuters. “The expenditures needed to fuel the economy’s recovery in August are a big question mark, given the hit to personal income nationwide with the loss of those $600 weekly unemployment benefit checks.”
Inflation rose for the second month in a row in July. The Personal Consumption Expenditures Price Index, the inflation gauge the Fed prefers, rose 0.3 percent. The yearly rate remained low, at 1 percent. The PCE’s core rate of inflation, which strips out the volatile food and energy sectors, was also up 0.3 percent, but was up just 1.3 percent on a yearly basis.
The Conference Board’s Leading Economic Index, which aims to predict future economic activity, rose 1.4 percent in July, to 104.4, after 3 percent increases in May and June.
“The U.S. LEI increased for the third consecutive month in July, albeit at a slower pace than the sharp increases in the previous two months,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “Despite the recent gains in the LEI, which remain fairly broad-based, the initial post-pandemic recovery appears to be losing steam. The LEI suggests that the pace of economic growth will weaken substantially during the final months of 2020.”
Confidence among small businesses fell in July. The Small Business Optimism Index of the National Federation of Independent Business declined 1.8 points, to 98.8, which the NFIB reported being near the survey’s historical average.
“This summer has been challenging for many small business owners who are working hard to keep their doors open and remain in business,” NFIB’s chief economist, Bill Dunkelberg, stated in a press release. “Small business represents nearly half of the GDP, and this month we saw a dip in optimism. There is still plenty of work to be done to get businesses back to pre-crisis numbers.”
In the housing market, builder confidence in the market for single-family homes rose six points, to 78, in August on the National Association of Home Builders/Wells Fargo Housing Market Index.
The association reported that the index now stands at the highest level in its 35-year history, matching the level of December 1998.
“The demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs as measured on the HMI,” NAHB chairman Chuck Fowke stated in a press release. “However, the V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates.”
NAHB chief economist Robert Dietz added: “Housing has clearly been a bright spot during the pandemic, and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020. Single-family construction is benefiting from low interest rates and a noticeable shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower-density markets.”
All of the HMI indices posted gains in August. The HMI index that gauges current sales conditions rose six points, to 84; the component that measures sales expectations in the next six months increased three points, to 78; and the measure that charts the traffic of prospective buyers posted an eight-point gain, to reach its highest level ever, at 65.
Any number above 50 on the HMI indexes indicates that builders see conditions as good rather than poor.
The U.S. Department of Housing and Urban Development reported that sales of newly built, single-family homes rose in July to its highest pace since 2006. Sales increased 13.9 percent, to a seasonally adjusted annual rate of 901,000.
The home resale market was also strong in July, with sales jumping 24.7 percent from June, to a seasonally adjusted annual rate of 5.86 million, the National Association of Realtors reported.
“The housing market is well past the recovery phase and is now booming with higher home sales, compared to the pre-pandemic days,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “With the sizable shift in remote work, current homeowners are looking for larger homes, and this will lead to a secondary level of demand even into 2021.”
Home resales were up 30.6 percent in the Northeast, 30.5 percent in the West, 27.5 percent in the Midwest and 19.4 percent in the South.
The median existing-home price in July was $304,100, up 8.5 percent from July 2019, as prices also rose in every region.
This article was originally published in the October 2020 issue.