One important indicator of consumer confidence rose in February, a hopeful sign for the economy as the pandemic entered a second year amid more than 500,000 deaths from the coronavirus in the United States.
The Conference Board reported that its Consumer Confidence Index climbed to 91.3 from a revised 88.9 in January. For the overall index, this was a three-month high.
“After three months of consecutive declines in the Present Situation Index, consumers’ assessment of current conditions improved in February,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “This course reversal suggests economic growth has not slowed further. While the Expectations Index fell marginally in February, consumers remain cautiously optimistic, on the whole, about the outlook for the coming months. Notably, vacation intentions — particularly, plans to travel outside the U.S. via air — saw an uptick [in February], and are poised to improve further as vaccination efforts expand.”
A separate measure of consumer confidence slipped in February. Staff at the University of Michigan reported that the school’s Consumer Sentiment Index fell to 76.8 from 79 in January.
“All of February’s loss was due to households with incomes below $75,000, with the declines mainly concentrated in future economic prospects,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “The worst of the pandemic may be nearing its end, but few consumers anticipate the type of persistent and robust economic growth that restores employment conditions to the very positive pre-pandemic levels.
“The recent revival in spending has been driven by drawdowns in precautionary savings,” Curtin added. “Interestingly, those with a college degree were more cautious about prospects for the national economy until just a few months ago. In contrast, those with less than a college degree recorded the least-favorable economic prospects in this month’s survey, indicating the high cumulative toll of the pandemic. It is common that groups [that] had suffered the least in a recession are the first to propel the economy forward, although it is true that those whose jobs were in the hardest-hit sectors will be the slowest to fully recover.”
Bill Hodges, president and CEO of Centek Industries, which provides marine exhaust and engine-room ventilation solutions, said his business saw a “brief but dramatic” slowdown last spring because of the pandemic.
“Since then, demand has steadily increased, and now we see strong demand across all market segments,” he said. “Revenue was down somewhat in 2020, primarily due to Q2 and Q3 disruptions, but was strong in the later months of the year.”
So far, Hodges says, 2021 has been “very strong, and indications are that demand will stay strong in the coming months. The key challenges will be dramatic increases in raw-material costs, and the cost and availability of international freight.”
Based in Thomasville, Ga., Centek’s family of companies includes Centek Marine, Fortress Pilings and Fiberglass Tubing Supply. Centek recently acquired Delta T Systems, which designs, engineers and manufactures marine ventilation systems.
“Fortunately, our manufacturing footprint and normal operating procedures already provide for social distancing in most instances,” he said. “That being said, it has been an adjustment. But we have adapted and do not feel that these procedures negatively impact productivity.”
Hodges said the company had only a few employees working from home full time; others split time between the office, plant and home. “We see the economy, in general, as quite strong,” he added. “Travel and tourism-related segments are still suffering, but other areas, such as recreational boating, are experiencing unprecedented demand. Despite the pandemic, the savings rate in the U.S. has increased significantly. Due to increased demand, retail boat inventories are very low. It will take strong, sustained production for an extended period to replenish inventories to appropriate levels.”
Given that recreational boating relies on people who have substantial disposable income, he said, “Indicators of the financial position and confidence of this group include the stock market, the housing market and interest rates. Positive trends in these areas bode well for our industry.”
For Centek internationally, he said, “demand has returned and is quite healthy. The disruptions due to Covid have been more extended in many of these markets.”
The Domestic Outlook
The U.S. Department of Commerce reported that consumer spending jumped 2.4 percent in January, boosted by stimulus checks the federal government sent to families. It was the strongest increase in seven months. Personal income rose 10 percent.
“Thanks to Washington, the economic outlook in the near future is sunny,” Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles, told Reuters.
Inflation rose moderately in January. The Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation gauge, climbed 0.3 percent. The price gauge was up 1.5 percent for the year that ended in January, keeping the gauge below the Fed’s target rate of 2 percent.
Fed chairman Jerome Powell, in testimony Feb. 23 before the Senate Banking Committee, was cautious about whether the U.S. economy could recover from the pandemic this year. Millions of people remain out of work.
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” Powell said, indicating that the Fed would continue its policy of low interest rates and bond-buying in efforts to stimulate growth.
The Conference Board reported that its Leading Economic Index rose 0.5 percent in January, to 110.3, after increases of 0.4 percent in December and 0.9 percent in November. The index attempts to predict future economic activity.
“While the pace of increase in the U.S. LEI has slowed since mid-2020, January’s gains were broad-based and suggest economic growth should improve gradually over the first half of 2021,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “As the vaccination campaign against Covid-19 accelerates, labor markets and overall growth are likely to continue improving through the rest of this year, as well. The Conference Board now expects the U.S. economy to expand by 4.4 percent in 2021, after a 3.5 percent contraction in 2020.”
The mood among the nation’s small businesses darkened in January for the third month in a row. The National Federation of Independent Business reported that its Small Business Optimism Index fell 0.9 points, to 95. That is three points below the 47-year average of 98.
“As Congress debates another stimulus package, small employers welcome any additional relief that will provide a powerful fiscal boost, as their expectations for the future are uncertain,” NFIB chief economist Bill Dunkelberg stated in a press release. “The Covid-19 pandemic continues to dictate how small businesses operate, and owners are worried about future business conditions and sales.”
Confidence among home builders inched up in February. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index rose one point, to 84.
“Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows,” NAHB chairman Chuck Fowke stated in a press release. “Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year.”
NAHB chief economist Robert Dietz added: “Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower-cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply-chain issues and regulatory risks. Some builders are at capacity and may not be able to expand production due to these headwinds.”
The Housing Market Index that gauges current sales conditions held steady at 90; the component that measures sales expectations in the next six months fell three points, to 80; and the gauge that charts the traffic of prospective buyers rose four points, to 72. Any number above 50 indicates that more builders see conditions as good rather than poor.
The Commerce Department also reported that sales of new single-family homes totaled 923,000 in January at a seasonally adjusted annual rate, up 4.3 percent from an upwardly revised pace of 885,000 in December. This increase was greater than expected, and the results were attributed to continued low mortgage rates and a shortage of previously owned houses from which to choose.
“There is an insatiable demand for homes right now, and it can’t be met by resales of existing homes, so people are signing contracts for new homes,” Holden Lewis, home and mortgage expert at NerdWallet, told Reuters.
Home resales were also higher in January. The National Association of Realtors reported that sales rose 0.6 percent from December to a seasonally adjusted annual rate of 6.69 million.
“Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “Sales easily could have been even 20 percent higher, if there had been more inventory and more choices.”
The median existing-home price in January was $303,900, which was up 14.1 percent from January 2020, as prices increased in every region of the country. January’s national price increase marks 107 straight months of year-over-year gains.
“Home sales are continuing to play a part in propping up the economy,” Yun added. “With additional stimulus … and several vaccines now available, the housing outlook looks solid for this year.”