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ECONOMY REPORT: Omnipresent Omicron

Pursuit Boats

Pursuit Boats

A key measure of U.S. consumer confidence rose in December despite the rapid spread of the Omicron variant throughout the country. The Conference Board reported that its Consumer Confidence Index rose to 115.8 from an upwardly revised 111.9 in November.

“Consumer confidence improved further in December, following a very modest gain in November,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “The Present Situation Index dipped slightly, but remains very high, suggesting the economy has maintained its momentum in the final month of 2021. Expectations about short-term growth prospects improved, setting the stage for continued growth in early 2022. The proportion of consumers planning to purchase homes, automobiles, major appliances and vacations over the next six months all increased.

“Meanwhile, concerns about inflation declined after hitting a 13-year high last month, as did concerns about Covid-19, despite reports of continued price increases and the emergence of the Omicron variant,” Franco added. “Looking ahead to 2022, both confidence and consumer spending will continue to face headwinds from rising prices and an expected winter surge of the pandemic.”

Meanwhile, a separate reading of the consumer mood also improved in December. The University of Michigan reported that its Consumer Sentiment Index rose from 67.4 in November to 70.6 in December.

“The uptick was primarily due to significant gains among households with incomes in the bottom third of the distribution,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “Indeed, the bottom third expected their incomes to rise during the year ahead by 2.8 percent, up from 1.8 percent last December, and the highest level since 2.9 percent was recorded in 1999. There have only been five times in the past half century that income expectations among low-income households have exceeded the December 2021 level. The announced increase in Social Security payments of 5.9 percent in 2022 was partly responsible for the gain, and 5 percent increases in expected wage among the youngest workers. Importantly, too few interviews were conducted to capture the impact of the rapid spread of the Omicron variant in the U.S. Confidence and spending are likely to be depressed in January, but it is too early to know the eventual impact of Omicron on the economy.”

Taylor Made

Taylor Made

The U.S. Department of Commerce reported that consumer spending rose 0.6 percent in November after a 1.4 percent rise in October. Personal income rose 0.4 percent.

Inflation rose in November. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy components, rose 0.5 percent. In the 12-month period through November, the so-called core PCE index rose 4.7 percent. That was the largest increase since February 1989.

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

“Although consumers say they are anxious about inflation, the outlook for household spending growth in 2022 is solid,” Gus Faucher, chief economist at PNC Financial, told Reuters. “Consumers have an extra $2 trillion saved up, relative to before the pandemic, thanks to government aid in 2020 and 2021 and limited opportunities to spend.”

The Conference Board reported that its Leading Economic Index rose 1.1 percent in November, to 119.9, after increases of 0.3 percent in September and 0.9 percent in October. The index attempts to predict future economic activity.

Pursuit Boats

Pursuit Boats

“The U.S. LEI rose sharply again in November, suggesting the current economic expansion will continue into the first half of 2022,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “Inflation and continuing supply-chain disruptions, as well as a resurgence of Covid-19, pose risks to GDP growth in 2022. Still, the economic impact of these risks may be contained. The Conference Board forecasts real GDP growth to strengthen in Q4 2021 to about 6.5 percent (annualized rate) before moderating to a still-healthy rate of 2.2 percent in Q1 2022.”

The mood among the nation’s small businesses brightened slightly in November. The National Federation of Independent Business reported that its Small Business Optimism Index rose 0.2 points, to 98.4.

Forty-eight percent of business owners in the NFIB said they had job openings they could not fill. A net 44 percent of business owners said they raised employee pay during the month, a percent that was unchanged from October and that the NFIB says is a 48-year record high.

Confidence among the nation’s home builders improved in December. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index rose one point, to 84.

“While demand remains strong, finding workers, predicting pricing and dealing with material delays remains a challenge,” NAHB chairman Chuck Fowke stated in a press release. “Policy-makers need to work on supply-chain improvements and controlling costly inflation. Addressing lumber tariffs would be a good place to start.”

NAHB Chief Economist Robert Dietz added: “The most pressing issue for the housing sector remains lack of inventory. Building has increased, but the industry faces constraints, namely cost/availability of materials, labor and lots. And while 2021 single-family starts are expected to end the year 24 percent higher than the pre-Covid 2019 level, we expect higher interest rates in 2022 will put a damper on housing affordability.”

Seakeeper

Seakeeper

The HMI index that gauges current sales conditions rose one point, to 90; the gauge that charts the traffic of prospective buyers also posted a one-point gain, to 70. The component that measures sales expectations in the next six months was steady for the third consecutive month, at 84.

The Commerce Department reported that sales of new homes rose 12.4 percent in November, to a seasonally adjusted annual rate of 744,000. The median sales price of a new home sold in November was $416,900.

Existing-home sales also rose in November. The National Association of Realtors reported that sales climbed 1.9 percent, to a seasonally adjusted annual rate of 6.46 million.

“Determined buyers were able to land housing before mortgage rates rise further in the coming months,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “Locking in a constant and firm mortgage payment motivated many consumers who grew weary of escalating rents over the last year.

“Mortgage rates are projected to jump in 2022. However, I don’t expect the imminent increase to be overly dramatic,” Yun added, with a forecast that the 30-year fixed mortgage rate would average 3.7 percent by the end of 2022.

The median existing-home price in November was $353,900, up 13.9 percent from the same month a year earlier. Prices increased in every region of the country. The development marks 117 consecutive months of year-over-year increases.

“Supply-chain disruptions for building new homes and labor shortages have hindered bringing more inventory to the market,” Yun said. “Therefore, housing prices continue to march higher due to the near record-low supply levels.”

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