July 25, 2017 Reading Time: 2 minutes

Consumer confidence as gauged by The Conference Board’s consumer-confidence survey improved in July, rising to 121.1 from 117.3 in June. The result differs from the slightly lower consumer-sentiment data from the University of Michigan released last week. The two surveys show similar results for consumers’ attitudes about current conditions. The Conference Board survey’s Present Situation Index rose to 147.8 from 143.9 in June, and the Michigan survey’s Current Economic Conditions Index rose to 113.2 from 112.5.

A key driver of more positive sentiment about current economic conditions is the strong labor market. The Conference Board survey asks respondents if jobs are “hard to get,” “not so plentiful,” or “plentiful.” In percentage terms, the “hard to get” answer fell to 18.0 from 18.4 while that of respondents saying jobs were plentiful rose to 34.1 from 32.0. The difference between the two (+13.6) is at a 16-year high, exceeding the peak prior to the Great Recession and nearly matching the peak in 1989 before the 1990 recession. The spread is still below the all-time peak of 46.1 in 2000.

The two surveys had differing results on consumers’ attitudes about the future. The Conference Board’s Expectations Index rose to 103.3 from 99.6 in June while the Michigan survey’s Index of Consumer Expectations, corresponding to one of the AIER Leaders, fell to 80.2 in July from 83.9 in June.

Sales of existing homes fell 1.8 percent in June to a 5.52 million seasonally adjusted annual pace. Single-family homes account for about 90 percent of the total and posted a 2.0 percent drop last month while condo and coop sales were steady in June, selling at a 640,000 pace.

Within the single-family market, sales fell in three of the four regions shown, with only the Midwest posting a rise (+3.3 percent). The inventory of existing single-family homes for sale held steady at 1.74 million, resulting in a months’ supply (inventory divided by current selling rate) of 4.3 months, up from 4.2 months in May. A months’ supply below five is quite tight by historical measures. That tight supply is helping push home prices up. National Association of Realtors data show the median sale price of an existing single-family home sold in June was about 6.6 percent higher than a year ago. This number can be somewhat skewed by the composition of sales in any particular month. The S&P Case-Shiller home-price index for 20 major metropolitan areas shows a slightly lower but still robust 5.7 percent increase in home prices in May over a year ago.

The much smaller condo/coop market saw sales surge 9.1 percent in the Northeast while sales were flat in the Midwest and West but down 3.4 percent in the South. Inventories fell 3.1 percent to 218,000, pushing the months’ supply down to 4.1 months, a very low figure. Nationwide, prices of condos and coops were up 6.5 percent from a year ago.

Overall, the strong labor market should provide some support for housing, while rising incomes and asset prices and the low pace of price increases should provide some support for the economy. But recent signs of weakness in consumer attitudes combined with higher interest rates, tight supply, and rising prices are likely to temper housing activity over the coming months.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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