Most Signs Still Rosy

The U.S.-China trade war has consumers concerned, but overall sentiment remains high
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“Recreational boaters in our target market are continuing to experience a strong economy.” 
— Jeff Robbins, CEO 
Vesper Marine

“Recreational boaters in our target market are continuing to experience a strong economy.” — Jeff Robbins, CEO Vesper Marine

An important measure of American consumer confidence rose to a six-month high in May, and personal income and consumer spending improved in a still-healthy economy.

The Conference Board says its Consumer Confidence Index rose to 134.1 in May, up from 129.2 in April, bringing it to levels seen last fall when the index hovered near 18-year highs. “The increase in the Present Situation Index was driven primarily by employment gains,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “Expectations regarding the short-term outlook for business conditions and employment improved, but consumers’ sentiment regarding their income prospects was mixed. Consumers expect the economy to continue growing at a solid pace in the short term, and despite weak retail sales in April, these high levels of confidence suggest no significant pullback in consumer spending in the months ahead.”

The U.S. Department of Commerce reported that personal income rose 0.5 percent in April, and that consumer spending rose 0.3 percent. The Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures Price Index, rose 0.2 percent in April and 1.6 percent from a year earlier, remaining below the Fed’s 2 percent target that could prompt a rate increase.

“Everything we see [in these April reports] is good news for the economy, and at the margin a little better growth in the second quarter perhaps,” Stephen Stanley, chief economist at Amherst Pierpont Securities, told Bloomberg. “I think the Fed is very firmly entrenched in its patient stance” on interest rates.

A second measure of consumer confidence declined in the second half of May after the trade dispute between the United States and China flared up in another round of tariffs from both countries. The University of Michigan’s Consumer Sentiment Index ended the month at 100, down from a midmonth reading of 102.4.

President Trump raised tariffs from 10 to 25 percent on another $200 billion in Chinese imports after trade talks ended May 10 with no agreement. China responded May 13 with new tariffs on $60 billion of American exports.

“Although consumer sentiment remained at very favorable levels, confidence significantly eroded in the last two weeks of May,” Richard Curtin, chief economist at the University of Michigan’s Surveys of Consumers, stated in a press release. “The late-month decline was due to unfavorable references to tariffs, spontaneously mentioned by 35 percent of all consumers in the last two weeks of May, up from 16 percent in the first half of May and 15 percent in April, and equal to the peak recorded last July in response to the initial imposition of tariffs.”

Jeff Robbins, CEO of New Zealand-based Vesper Marine, said he was optimistic about the prospects for his company and the U.S. economy. “Recreational boaters within our target market are continuing to experience a strong economy,” Robbins said. “Home values are up and predicted to continue upward, and after a harrowing downturn in October, the stock market has had its largest first-quarter gain since 1998. The effect of tax cuts may also provide more disposable income for people in the boating market.”

Vesper Marine is a global provider of safety products for recreational and commercial boats, aids to navigation and marine asset protection solutions. “At Vesper, we are continuing to invest heavily in new technology and products which will expand our opportunities, and we are optimistic for the future,” Robbins adds. “Very soon we will be releasing a new recreational boating product line built on an entirely new technology platform that is the culmination of years of R&D. It brings a combination of functionality and utility that is unique in the market, and early reception to it has been very strong.”

Robbins says Americans’ personal wealth and consumer confidence are the two most important factors he considers when evaluating the company’s prospects for its recreational boating business in the United States. “Continued low unemployment, combined with these two factors, leads to consumer spending, and when you look at an activity like boating that is a lifestyle choice, individuals are willing to invest in the products and technologies that help them fuel their passion and get the most out of their lifestyle,” he says, adding that thanks to Vesper’s smart AIS transponders, 2018 was the strongest year to date in the company’s 12-year history.

Robbins says Trump’s tariffs have not affected Vesper Marine’s business. “It is certainly an issue that is being watched around the world,” he says. “However, we don’t manufacture Vesper products in China, so we have not been impacted by the tariffs levied on other products.”

A survey showed that the mood among the country’s small businesses has improved. The Small Business Optimism Index, produced by the National Federation of Independent Business, rose 1.7 points in April to 103.5. “America’s small and independent businesses are rebounding from the first quarter ‘shut down, slow down’ and don’t appear to be looking back,” NFIB president and CEO Juanita D. Duggan stated in a press release. “April’s index is further evidence that when certainty and stability increase, so do optimism and action. The continued economic boom is thanks, in a major way, to strong growth in the small-business half of the economy.”

NFIB chief economist Bill Dunkelberg stated in a press release: “The ‘real’ economy is doing very well, versus what we see in financial market volatility. Many jobs were created and GDP produced with no substantive inflation pressure. The pace of economic growth has accelerated, and consumers and small businesses are an important part of the improvement in sales.”

The Conference Board’s Leading Economic Index, which attempts to predict future economic activity, rose 0.2 percent in April to 112.1, after increases in March and February. “The U.S. LEI rose in April, the third consecutive increase, with a majority of the leading indicators making positive contributions,” Ataman Ozyildirim, director of economic research at The Conference Board, stated in a press release. “Stock prices, financial conditions and consumers’ outlook on the economy buoyed the U.S. LEI, although the manufacturing sector showed continuing weakness. The Conference Board expects economic growth to moderate toward 2 percent by year-end. The current expansion will enter its 11th year in July, becoming the longest expansion in U.S. history.”

In the housing market, confidence among builders hit a seven-month high in May. The National Association of Home Builders says its NAHB/Wells Fargo Housing Market Index rose three points to 66, the highest reading since October. Any number over 50 indicates that more builders view conditions as good than poor in the market for newly built, single-family homes.

“Builders are busy catching up after a wet winter, and many characterize sales as solid, driven by improved demand and ongoing low overall supply,” NAHB chairman Greg Ugalde, a home builder and developer from Torrington, Conn., stated in a press release. “However, affordability challenges persist and remain a big impediment to stronger sales.”

NAHB chief economist Robert Dietz added: “Mortgage rates are hovering just above 4 percent following a challenging fourth quarter of 2018, when they peaked near 5 percent. This lower-interest-rate environment, along with ongoing job growth and rising wages, is contributing to a gradual improvement in the marketplace. At the same time, builders continue to deal with ongoing labor and lot shortages, and rising material costs that are holding back supply and harming affordability.”

The NAHB says all of the Housing Market Index’s indices posted gains in May. The index measuring current sales conditions rose three points to 72; the component gauging expectations in the next six months edged one point higher, also to 72; and the metric charting buyer traffic moved up two points to 49.

The Commerce Department says new-home sales fell 6.9 percent in April from the previous month, to a seasonally adjusted annual rate of 673,000. They were at a 12-year high of 723,000 in March. “The underlying trend in sales remains strong,” Zillow economic analyst Matthew Speakman told USA Today. “Builders are finding ways to deliver homes despite expensive land and labor prices, a boon to buyers thirsty for more supply.”

The National Association of Realtors reported that existing-home sales had a minor decline in April, falling 0.4 percent to a seasonally adjusted annual rate of 5.19 million. NAR chief economist Lawrence Yun says he is not overly concerned about the decline and is optimistic that moderate sales growth will soon occur.

“First, we are seeing historically low mortgage rates, combined with a pent-up demand to buy, so buyers will look to take advantage of these conditions,” he says. “Also, job creation is improving, causing wage growth to align with home price growth, which helps affordability and will help spur more home sales.”

The NAR reported that the median existing-home price in April was $267,300, up 3.6 percent from the same month a year earlier. April’s price increase marked the 86th successive month of year-over-year gains. 

This article originally appeared in the July 2019 issue.

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