American businesses see the economy continuing to expand, though moderately, and consumers are slightly less optimistic than they were as 2017 ended.
Those were key points from the Federal Reserve’s Beige Book report for late November to Jan. 8 and the University of Michigan’s Index of Consumer Sentiment for the first half of January.
The Fed said the periodic survey of its 12 financial districts “indicated that the economy continued to expand … with 11 districts reporting modest to moderate gains and Dallas recording a robust increase. The outlook for 2018 remains optimistic for a majority of contacts across the country.”
“Most districts reported that non-auto retail sales expanded since the last report and that auto sales were mixed,” the Fed added. “Some retailers highlighted that holiday sales were higher than expected. Residential real estate activity remained constrained across the country. Most districts reported little growth in home sales due to limited housing inventory. Nonresidential activity continued to experience slight growth. Most manufacturers reported modest growth in overall business conditions.”
Employment rose “at a modest pace since the previous report,” the Fed said. “Most districts cited ongoing labor market tightness and challenges finding qualified workers across skills and sectors, which, in some instances, was described as constraining growth.”
Consumer confidence edged lower in the University of Michigan’s survey, dropping from 95.9 at the end of December to 94.4 in mid-January.
Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement that consumers “evaluated current economic conditions less favorably,” but 70 percent of those who responded to the university’s survey said they expect the impact of the federal tax reform law to be positive.
“The disconnect between the future outlook assessment and the largely positive view of tax reform is due to uncertainties about the delayed impact of the tax reforms on the consumers,” Curtin said. “Some of the uncertainty is related to how much a cut or an increase people, especially high-income households who live in high-tax states, face.”
Two regional monthly assessments of manufacturing were lower in January. The Empire State manufacturing index, which covers New York, fell slightly, to 17.7, from 19.6 in December, although any reading above zero indicates growth.
The New York Fed said “manufacturers in the state reported that business activity continued to expand strongly. … Thirty-two percent of respondents reported that conditions had improved over the month, while 15 percent reported that conditions had worsened.”
The Fed said manufacturers’ six-month outlook “remained optimistic.”
The Philadelphia Fed manufacturing index, which covers the Mid-Atlantic region, dropped from 27.9 in December to 22.2 in January, which the central bank said was its lowest reading in five months.
The Fed also noted, though, that “the index has stayed within a relatively narrow range during the past eight months” and said “other broad indicators continue to suggest overall growth.”
The Fed said manufacturers in the Philadelphia district reported an increase in manufacturing employment. The current employment index dropped by three points, to 16.8.
“The percentage of firms reporting an increase in employment (24 percent) exceeded the percentage reporting a decrease (8 percent),” the Fed said.
Homebuilders lost a bit of confidence this month. The National Association of Home Builders/Wells Fargo Housing Market Index fell by two points, to 72, after it hit an 18-year high in December.
“Builders are confident that changes to the tax code will promote the small business sector and boost broader economic growth,” NAHB chairman Randy Noel, a custom home builder from LaPlace, La., said in a statement. “Our members are excited about the year ahead, even as they continue to face building material price increases and shortages of labor and lots.”
“The HMI gauge of future sales expectations has remained in the 70s, a sign that housing demand should continue to grow in 2018,” NAHB chief economist Robert Dietz said. “As the overall economy strengthens, owner-occupied household formation increases and the supply of existing home inventory tightens, we can expect the single-family housing market to make further gains this year.”
The Commerce Department said housing starts fell 8.2 percent in December, to a seasonally adjusted annual rate of 1.19 million. Building permits, at 1.3 million, were about flat with the November rate.
“Housing starts were held down by the cold winter weather, but should bounce back quickly in coming months as the country warms up from this recent cold spell,” Chris Rupkey, chief economist at MUFG in New York, told Reuters.
The housing industry again figures prominently in this week’s business news. The National Association of Realtors will produce its December report on existing-home sales on Wednesday and the Commerce Department will issue its report on new-home sales Thursday.
Also Thursday, The Conference Board will issue its report on leading economic indicators for December, and on Friday the Commerce Department will issue its report on the nation’s gross domestic product for the fourth quarter of last year.
Also among Friday’s reports will be the Commerce’s December report on durable-goods orders.