A key measure of U.S. consumer confidence barely moved in October as the Covid-19 pandemic began a fall resurgence that showed no signs of abating.
The Conference Board reported that its Consumer Confidence Index fell to 100.9 from 101.3 in September.
“Consumer confidence declined slightly in October, following a sharp improvement in September,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “Consumers’ assessment of current conditions improved, while expectations declined, driven primarily by a softening in the short-term outlook for jobs. There is little to suggest that consumers foresee the economy gaining momentum in the final months of 2020, especially with Covid-19 cases on the rise and unemployment still high.”
A separate measure of consumer confidence was also little changed in October. The University of Michigan’s Consumer Sentiment Index rose from 80.4 in September to 81.8 in October.
“Consumer sentiment remained virtually unchanged from the first half of October and was insignificantly different from [September’s] figure,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “Fear and loathing produced this false sense of stability. Fears were generated by rising Covid infection and death rates, and loathing was generated by the hyper-partisanship that has driven the [presidential] election to ideological extremes. … Renewed optimism now requires progress against the coronavirus and mitigating its uneven impact on families, firms and local governments.”
Tony Barber, CEO of SmartPlug Systems LLC, a Seattle-based manufacturer that specializes in power delivery systems, says he sees the U.S. economy showing signs of a comeback in significant areas.
“The unemployment numbers continue to go down, and businesses are looking for workers,” Barber says. “There are still many areas and businesses that have still not been allowed to come back. These businesses are desperately looking for additional help and are waiting to hear some good news. Opening up these areas would help to continue the expansion of the economy. Personally, I think it will continue to expand.”
Barber’s home base of Seattle was one of the first major cities that Covid-19 hit.
“The state went into lockdown and the business was shut down,” he says. “In the middle of Q2, we were able to get some relief by being classified as an essential business because of the work we do with first responders, such as fire and police boats, the U.S. Coast Guard and emergency vehicles. Business has come back and been growing ever since. We are riding the wave of the robust marine and RV markets.”
Barber says the coronavirus changed the way SmartPlug is operating its business.
“Our operations team redesigned their manufacturing footprint to allow for social distancing,” he says. “There is less crossover between the office and the factory to reduce one-on-one contact. Those who can work remotely are still working from home. Our sales team is reducing their exposure by limiting travel and in-person contacts, and using tools like Microsoft Teams and Zoom.”
Barber says he also has changed the way he analyzes the economy when he assesses his company’s chances for success.
“Normally, I would watch consumer confidence, housing starts, personal disposable income, the GDP and the RV market — RV shipment data over the years has proven to be a leading indicator,” he says. “With that being said, things today are different. Boating is one of the few family activities that can be done with minimum risk from Covid-19. It gets you outdoors, is easy to social distance and allows you to enjoy a day on the water. During these times, we have shifted our attention to focus more on boatbuilders. By staying close to the builders, their dealers and their inventory, we are able to get a feel for the industry and get the pulse of what the future will bring.”
The SmartPlug is a device designed to replace the current shore power delivery system. Barber says the company showed growth in 2019 and 2020, in the United States as well as globally.
“To address these [overseas] markets, we created 16A and 32A product offerings,” he says. “Also, several of the international builders who send boats to the U.S. are being asked by their customers to incorporate our product on their boat. We have successfully developed a global distribution network to support our product in all major boating markets around the globe.”
Barber says President Trump’s tariffs have not affected SmartPlug’s business: “The majority of our suppliers are based in the Seattle area here in the USA. We saw this coming a few years ago and started several initiatives to establish a local supply chain of U.S. suppliers.”
Other good news in America was that after the worst quarter in its history, the U.S. gross domestic product rebounded in the third quarter, growing at its fastest pace in the 73 years for which records have been kept. The U.S. Department of Commerce reported that GDP grew at a 33.1 percent annualized pace. Consumer spending and business investment fueled the increase amid a $3 trillion stimulus program from the U.S. Congress.
In September, consumer spending rose for the fifth month in a row, climbing 1.4 percent, according to the Commerce Department. Consumers bought new cars and trucks, and new clothing, and spent more on recreational activities.
Personal income climbed 0.9 percent. Still, economists worried about how the beleaguered economy would fare without a new stimulus program from Congress.
“This recovery could be at risk without additional stimulus, as households with unemployed workers find themselves stretched financially heading into the holiday shopping season,” Augustine “Gus” Faucher, chief economist at PNC Financial in Pittsburgh, told Reuters. “Personal income and consumer spending could also take a big hit if the pandemic continues to spread and states reimpose restrictions on economic activity in response.”
Inflation remained tame in September. The Personal Consumption Expenditures Price Index — the gauge the Federal Reserve prefers — rose 0.2 percent.
Excluding the volatile food and energy components, the index also rose 0.2 percent. In the 12-month period through September, the so-called core PCE price index increased just 1.5 percent after rising 1.4 percent in August.
The Conference Board’s Leading Economic Index rose 0.7 percent in September after larger gains in August and July. The index attempts to predict future economic activity.
“The U.S. LEI increased in September, driven primarily by declining unemployment claims and rising housing permits. However, the decelerating pace of improvement suggests the U.S. economy could be losing momentum heading into the final quarter of 2020,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “The U.S. economy is projected to expand in Q4, but at a substantially slower rate of 1.5 percent (annual rate), according to The Conference Board’s GDP forecast. Furthermore, downside risks to the recovery may be increasing amid rising new cases of Covid-19 and continued labor market weakness.”
The mood among the nation’s small businesses improved in September. The National Federation of Independent Business reported that its Small Business Optimism Index rose 3.8 points, to 104.0, which the NFIB said was a historically high reading.
“As parts of the country continue to open, small businesses are seeing some improvements in foot traffic and sales,” NFIB chief economist Bill Dunkelberg stated in a press release. “However, some small businesses are still struggling financially to operate at full capacity while navigating state and local regulations, and are uncertain about what will happen in the future.”
Home builders were also more optimistic. The National Association of Home Builders reported that confidence in the market for newly built, single-family homes increased in October by two points, to 85, on the NAHB/Wells Fargo Housing Market Index. That result was even better than the previous all-time high of 83, which was recorded in September.
“Traffic remains high, and record-low interest rates are keeping demand strong as the concept of home has taken on renewed importance for work, study and other purposes in this Covid era,” NAHB chairman Chuck Fowke stated in a press release. “However, it is becoming increasingly challenging to build affordable homes as shortages of lots, labor, lumber and other key building materials are lengthening construction times.”
NAHB Chief Economist Robert Dietz added: “The housing market continues to be a bright spot for the economy, supported by increased buyer interest in the suburbs, exurbs and small towns. NAHB analysis published [in mid-October] showed that new single-family home sales are outpacing starts by a historic margin. Bridging this gap will require either a gain in construction volume or reductions in available inventory, which is already at a historic low in terms of months’ supply.”
The NAHB reported that all of the HMI indices had or matched their highest readings ever in October. The HMI index that gauges current sales conditions rose two points, to 90; the component that measures sales expectations in the next six months increased three points, to 88; and the measure that charts the traffic of prospective buyers held steady, at 74.
Any number above 50 indicates that more builders see conditions as good rather than poor.
The Commerce Department reported that sales of new single-family homes fell in September to a seasonally adjusted annual rate of 959,000. That was 3.5 percent less than a downwardly revised rate of 994,000 in August.
“While there could be some ups and downs along the way, we still look for strength in the housing market, as low mortgage rates boost activity and earlier pent-up demand for housing is released,” Daniel Silver, an economist at JPMorgan in New York, told Reuters.
In the existing-home market, sales rose for the fourth month in a row during September. The National Association of Realtors reported that sales rose 9.4 percent from August to a seasonally adjusted annual rate of 6.54 million.
“Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes, given the greater flexibility to work from home.”
The median existing-home price in September was $311,800, up 14.8 percent from the same month a year earlier. Prices rose in every region of the country. The price increase marks 103 straight months of year-over-year gains.