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A major indicator of U.S. consumer confidence rose to a five-month high in September as personal incomes climbed and the price of gasoline fell.

The Conference Board reported that its Consumer Confidence Index was up to 108.0 from a revised 103.6 in August.

“Consumer confidence improved in September for the second consecutive month, supported in particular by jobs, wages and declining gas prices,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “The Present Situation Index rose again, after declining from April through July. The Expectations Index also improved from summer lows, but recession risks nonetheless persist. Concerns about inflation dissipated further in September — prompted largely by declining prices at the gas pump — and are now at their lowest level since the start of the year.

“Meanwhile, purchasing intentions were mixed, with intentions to buy automobiles and big-ticket appliances up, while home purchasing intentions fell,” Franco added. “The latter no doubt reflects rising mortgage rates and a cooling housing market. Looking ahead, the improvement in confidence may bode well for consumer spending in the final months of 2022, but inflation and interest-rate hikes remain strong headwinds to growth in the short term.”

At the same time, a separate measure of the consumer’s mood was also improved in September, but just barely. The University of Michigan reported that its Consumer Sentiment Index rose to 58.6 in September from 58.2 in August.

“Buying conditions for durables and the one-year economic outlook continued lifting from the extremely low readings earlier in the summer, but these gains were largely offset by modest declines in the long-run outlook for business conditions,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release.

“The median expected year-ahead inflation rate declined to 4.7 percent, the lowest reading since last September,” Hsu added. “At 2.7 percent, median long-run inflation expectations fell below the 2.9- to 3.1-percent range for the first time since July 2021. Inflation expectations are likely to remain relatively unstable in the months ahead, as consumer uncertainty over these expectations remained high and is unlikely to wane in the face of continued global pressures on inflation.”

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The U.S. Department of Commerce
reported that consumer spending rose 0.4 percent in August. Personal income rose 0.3 percent.

“The near-term outlook remains modest at best,” Scott Hoyt, senior economist at Moody’s Analytics, told Reuters. “Rising interest rates will make new borrowing more expensive, undermining spending on big-ticket items typically bought on credit.”

Inflation was higher in August. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy categories, was up 0.6 percent. The core PCE price index rose 4.9 percent on a year-over-year basis.

The PCE is the Federal Reserve’s preferred inflation gauge.

The Conference Board reported that its Leading Economic Index fell 0.3 percent in August, to 116.2, after declining by 0.5 percent in July.

“The U.S. LEI declined for a sixth consecutive month, potentially signaling a recession,” Ataman Ozyildirim, senior director, economics at The Conference Board, stated in a press release. “Among the index’s components, only initial unemployment claims and the yield spread contributed positively over the last six months — and the contribution of the yield spread has narrowed recently.

“Furthermore, labor market strength is expected to continue moderating in the months ahead,” Ozyildirim added. “Indeed, the average workweek in manufacturing contracted in four of the last six months — a notable sign, as firms reduce hours before reducing their workforce. Economic activity will continue slowing more broadly throughout the U.S. economy and is likely to contract. A major driver of this slowdown has been the Federal Reserve’s rapid tightening of monetary policy to counter inflationary pressures. The Conference Board projects a recession in the coming quarters.”

The mood at the nation’s small businesses improved in August. The National Federation of Independent Business reported that its Small Business Optimism Index rose 1.9 points, to 91.8, but that figure remained well below the 48-year average of 98.

Twenty-nine percent of member business owners said inflation was the single most important problem in operating their business. That was down 8 percent from July.

“The small business economy is still recovering from the pandemic, while inflation continues to be a serious problem for owners across the nation,” NFIB chief economist Bill Dunkelberg stated in a press release. “Owners are managing the rising costs of utilities, fuel, labor, supplies, materials, rent and inventory to protect their earnings. The worker shortage is impacting small-business productivity as owners raise compensation to attract better workers.”

Forty-nine percent of owners reported job openings that were hard to fill. That percentage was unchanged from July. A net 46 percent of owners reported raising pay during the month. That was down 2 percent from July.

Confidence among the nation’s home builders fell for the ninth month in a row in September. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index dropped three points, to 46.

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“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” NAHB chairman Jerry Konter, a home builder and developer from Savannah, Ga., stated in a press release. “In another indicator of a weakening market, 24 percent of builders reported reducing home prices, up from 19 percent last month.”

NAHB chief economist Robert Dietz added: “Builder sentiment has declined every month in 2022, and the housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped pushed mortgage rates above 6 percent, the highest level since 2008. In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buy-downs, free amenities and price reductions.”

All three HMI component indexes showed declines in September. The index that gauges current sales conditions dropped three points, to 54; the index that tracks sales expectations in the next six months declined one point, to 46; and the index that measures the traffic of prospective buyers fell one point, to 31.

Any number above 50 indicates that more builders view conditions as good rather than poor.

The Commerce Department reported that sales of new homes rose in August by a sharp 28.8 percent, to a seasonally adjusted annual rate of 685,000. New home sales were down 14 percent through August despite the increase.

The median sales price rose 8.2 percent from the same month a year earlier, to $436,800.

Existing-home sales fell for the seventh straight month in August. The National Association of Realtors reported that sales dropped 0.4 percent, to a seasonally adjusted annual rate of 4.8 million.

“The housing sector is the most sensitive to and experiences the most immediate impacts from the Federal Reserve’s interest rate policy changes,” NAR chief economist Lawrence Yun stated in a press release. “The softness in home sales reflects this year’s escalating mortgage rates. Nonetheless, homeowners are doing well with near-nonexistent distressed property sales and home prices still higher than a year ago.”

The NAR also reported that the median existing-home price in August was $389,500, which marks 126 consecutive months of price increases. The NAR says that is the longest-running streak on record. 

This article was originally published in the November 2022 issue.

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