A key gauge of U.S. consumer confidence rose in September to an 18-year high and the unemployment rate fell to its lowest level since December 1969, providing the kinds of results that continue to cheer recreational marine executives such as Chris Baird of Fusion Entertainment.
The Conference Board says its Consumer Confidence Index rose to 138.4, up from 134.7 in August. The reading was the best since September 2000, which also was the year that the index hit its all-time high of 144.7.
The U.S. Department of Labor says the economy added 134,000 jobs in September, and the unemployment rate fell to 3.7 percent. The increase in jobs was below what economists expected, but the hurricane that hit the Carolinas could have been a factor in the results.
“The weaker gain in payrolls in September may partly reflect some hit from Hurricane Florence,” Michael Pearce, senior U.S. economist at Capital Economics, tells Reuters. “There is little in this report to stop the Fed continuing to raise interest rates gradually.”
The Labor Department says the economy added jobs in September in professional and business services (54,000), health care (26,000), transportation and warehousing (24,000), construction (23,000) and manufacturing (18,000).
The government revised its job totals for July and August upward by a combined 87,000, bringing the average job gain for the past 12 months to 201,000.
“The U.S. economy is very strong and solid at the moment,” says Baird, managing director of Fusion, the New Zealand-based marine stereo manufacturer. “Consumer confidence and strong employment numbers are a telling indicator of the economy’s strength.”
The rise in consumer confidence has been one of the best stories about the U.S. economy this year. “After a considerable improvement in August, consumer confidence increased further in September and hovers at an 18-year high,” Lynn Franco, director of economic indicators at The Conference Board, says in a statement.
“The September reading is not far from the all-time high of 144.7, reached in 2000,” Franco adds. “Consumers’ assessment of current conditions remains extremely favorable, bolstered by a strong economy and robust job growth. The Expectations Index surged in September, suggesting solid economic growth exceeding 3 percent for the remainder of the year. These historically high confidence levels should continue to support healthy consumer spending and should be welcome news for retailers as they begin gearing up for the holiday season.”
Baird says Fusion is having a very good year. “We cannot disclose figures, but under Garmin’s ownership over the last four years we have seen strong growth and expansion, especially in the United States. I think Garmin is happy with their purchase,” Baird says.
“The rest of this year is tracking as well as the start of the year, so we will finish up comfortably, compared with our 2017 sales,” he adds. “Even with the ‘noise’ of tariffs, I think the U.S. economy has enough strength to start well in 2019. I, however, cannot be as confident 12 to 18 months out. Personally, I have been through four big corrections in the market, and there is a smell in the air just starting again.”
The Conference Board says its Leading Economic Index advanced 0.4 percent in August. “The leading indicators are consistent with a solid growth scenario in the second half of 2018, and at this stage of a maturing business cycle in the U.S., it doesn’t get much better than this,” Ataman Ozyildirim, director of business cycles and growth research at the business research group, says in a statement.
“The U.S. LEI’s growth trend has moderated since the start of the year,” Ozyildirim adds. “Industrial companies that are more sensitive to the business cycle should be on the lookout for a possible moderation in economic growth in 2019. The strengths among the LEI’s components were very widespread, further supporting an outlook of above 3 percent growth for the remainder of 2018.”
A second major gauge of American consumer confidence also delivered an upbeat result in September. The University of Michigan’s Consumer Sentiment Index was at 100.1 at the end of the month, topping the 100 mark for only the third time since January 2004. It was up from 96.2 at the end of August.
Richard Curtin, chief economist of the university’s Surveys of Consumers, says the index’s results indicate that the economy’s expansion “has now benefited nearly all population subgroups.”
“All households held very optimistic expectations for improved personal finances in the year ahead, the most favorable financial prospects since 2004,” Curtin says. “Despite a lessening in September of the expected size of gains in nominal incomes, inflation expectations also declined, acting to offset concerns about declining living standards. Consumers anticipated continued growth in the economy and expected the unemployment rate to continue to slowly decline during the year ahead.
“The single issue that was cited as having a potential negative impact on the economy was tariffs,” Curtin adds. “Concerns about the negative impact of tariffs were cited by nearly one-third of all consumers in September.”
In late September the United States imposed tariffs on $200 billion worth of Chinese goods. China retaliated by slapping duties on $60 billion worth of U.S. products. Both countries had previously imposed $50 billion in tariffs on each other.
Separately, the U.S., Canada and Mexico resolved their trade squabble, reaching agreement at the end of September on a new deal to replace the North American Free Trade Agreement.
“The consumer is always in the driver’s seat when it comes to stoking the fires that run the engines of economic growth, but the million-dollar question is what is going to happen down the road when the trade tariffs start to bite?” Chris Rupkey, chief economist at MUFG in New York, tells Reuters.
“Like all marine businesses we are watching what is happening closely,” Fusion’s Baird says of the trade war between the United States and China. “The simple fact is the No. 1 and No. 2 economies in the world are now in a ‘proper’ trade war, and unfortunately they both strongly believe they are on the right side of the ledger. Hopefully, egos don’t get in the way, and both countries understand the consequences of a prolonged fight — otherwise we will all lose.”
Although more Americans are finding jobs, their pay increases continue to be small. The Labor Department says in its jobs report that average hourly earnings for all employees on private non-farm payrolls rose by 8 cents in September, to $27.24. On a year-over-year basis, earnings have increased by 73 cents, or just 2.8 percent. Pay growth has been sluggish for several years despite the economy’s sturdy recovery from the Great Recession.
The economy’s overall good health continues to impress the Federal Reserve. Fed chairman Jerome Powell told the National Association for Business Economics in Boston in early October that these seem to be “remarkably positive” times for the economy.
“Many of us have been looking back recently on the decade that has passed since the depths of the financial crisis,” Powell says in his speech. “In light of that experience, I am glad to be able to stand here and say that the economy is strong, unemployment is near 50-year lows, and inflation is roughly at our 2 percent objective. The baseline outlook of forecasters inside and outside the Fed is for more of the same.”
In late September the Fed raised its benchmark interest rate by a quarter-point, to a range of 2 percent to 2.25 percent, and the central bank’s policy-setting Federal Open Market Committee indicated that it anticipates raising the rate again in December. The Fed has gradually been increasing rates in an effort to keep inflation under control.
The Fed estimated that the gross domestic product will rise 3.1 percent for the full year, a projection it revised upward from 2.8 percent in June. The GDP grew by 4.2 percent in the second quarter.
In the housing market, recent reports revealed signs of strength and stability.
The Commerce Department says new-home sales rose 3.5 percent in August from the previous month, to a seasonally adjusted annual rate of 629,000, ending a two-month decline. The department also says housing starts were at a seasonally adjusted annual rate of 1.28 million in August, 9.2 percent higher than in July and 9.4 percent higher than in August 2017.
Confidence among home builders in the market for newly built single-family homes was unchanged in September on the National Association of Home Builders/Wells Fargo Housing Market Index. The index stood at 67, which the NAHB says was a “solid reading.”
“A growing economy and rising incomes, combined with increasing household formations, should boost demand for new single-family homes moving forward,” NAHB chief economist Robert Dietz says in a statement. “However, housing affordability is becoming a challenge, as builders face overly burdensome regulations and rising material costs exacerbated by an escalating trade skirmish. Interest rates are also forecasted to keep rising.”
Existing-home sales were steady at a seasonally adjusted annual rate of 5.34 million in August after four months of falling sales, the National Association of Realtors says.
“Strong gains in the Northeast and a moderate uptick in the Midwest helped to balance out any losses in the South and West, halting months of downward momentum,” NAR chief economist Lawrence Yun says in a statement. “With inventory stabilizing and modestly rising, buyers appear ready to step back into the market.”
The NAR says the median home resale price was $264,800 in August, up 4.6 percent from the same month a year earlier. August marked the 78th consecutive month of year-over-year gains.
A total of 1.92 million existing homes were available for sale at the end of August, a figure that was unchanged from the previous month, but up from 1.87 million at the same time last year.
“While inventory continues to show modest year-over-year gains, it is still far from a healthy level, and new-home construction is not keeping up to satisfy demand,” Yun says. “Homes continue to fly off the shelves, with a majority of properties selling within a month, indicating that more inventory — especially moderately priced, entry-level homes — would propel sales.”
This article originally appeared in the November 2018 issue.