Economic sentiment suffers third-biggest decline of past twelve months

Economic sentiment decreased over the past two weeks following three consecutive reading increases. The Penta-CivicScience Economic Sentiment Index (ESI) fell 1.6 points to 33.9.

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All of the ESI’s five indicators decreased over the past two weeks. Confidence in the overall U.S. economy decreased the most, falling 3.3 points to 31.6—its largest single-reading decrease since July 2022. 

—Confidence in buying a new home fell 1.9 points to 22.8.

—Confidence in personal finances fell 1.3 points to 53.0.

—Confidence in making a major purchase fell 1.2 points to 22.4.

—Confidence in finding a new job fell 0.3 points to 39.8.

The possibility of the U.S. defaulting on its debt looms large despite optimism that a deal will be made. Analysis from Moody’s predicts that even if the debt limit were breached for no more than a week, roughly 1.5 million jobs would be lost. If the default lasts into the summer then that figure would rise to 7.8 million American jobs lost and would be accompanied by a stock-market plunge that would erase $10 trillion in household wealth.

Ahead of the Federal Reserve’s June policy meeting, officials lack consensus on whether or not the Fed should pursue further interest rate hikes. Some, like Atlanta Fed president Raphael Bostic, support keeping rates the same, while others think the Fed should skip its June meeting altogether, waiting until July to implement another increase. St. Louis Fed president James Bullard took a harder stance, announcing that he hopes to see two more quarter-percentage-point interest rate hikes in 2023.

In light of raised interest rates, U.S. economic activity hit its 13-month peak in May. This growth was led by service-providing businesses, such as travel companies and restaurants, highlighting Americans’ post-pandemic spending habits. 

The housing market remained tight over the last two weeks. In April sales of previously owned U.S. homes fell 23.2% from a year earlier. At the same time, the average 30-year fixed-rate mortgage remains high—sitting at 6.39% the week of May 18—despite being down from a peak of 7.08% in November, which was the highest since 2002. However, the housing market also got a boost after permits for future U.S. single-family homebuilding increased to a seven-month high in April.

The labor market remained strong over the past two weeks. The Labor Department reported that initial claims for state unemployment benefits had the largest drop since November 20, 2021—declining 22,000 to a seasonally adjusted 242,000 for the week ended May 13.

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The ESI’s three-day moving average began this two-week stretch at 34.9 on May 10. It trended downward to 33.0 on May 12, rose to 33.9 on May 14, and then fell to a low of 32.6 on May 16. The three-day average then rose to 35.3 on May 9, fell to 34.5 on May 21, and rose to a peak of 36.1 on May 23 to close out the session.

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The next release of the ESI will be Wednesday, June 7, 2023.

Confidence in the overall U.S. economy pushes consumer sentiment higher

Economic sentiment increased again over the past two weeks—its third consecutive hike following multiple large drops in March and early April. The Penta-CivicScience Economic Sentiment Index (ESI) rose 1.0 point to 35.5.

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All of the ESI’s five indicators increased over the past two weeks. Confidence in the overall U.S. economy improved the most, rising 3.5 points to 34.9—its largest single-reading increase since November 2022. 

—Confidence in buying a new home rose 1.1 points to 24.7.

—Confidence in finding a new job rose 0.4 points to 40.1.

—Confidence in making a major purchase rose 0.1 points to 23.6.

—Confidence in personal finances rose 0.1 points to 54.3.

The U.S. economy remains resilient but shaky as markets see the effects of the Federal Reserve’s efforts to cool the economy—including causing the housing sector to shrink for the eighth consecutive quarter and business investment in equipment falling for the second straight quarter. 

However, thus far these slowdowns have been counteracted by robust consumer spending and a strong labor market, which helped U.S. GDP increase 1.1% in the first quarter of 2023, according to the Bureau of Economic Analysis’ advance estimate. Despite persistent inflation and high prices, consumers continue to spend, even sticking to their typical shopping habits  instead of transitioning to cheaper alternatives.

Americans’ confidence in their personal finances fell despite their wages increasing 4.4% year over year as of April. The U.S. personal savings rate remains below its historical average, sitting at 5.1% in March compared to the average annual rate of more than 8%, according to the U.S. Bureau of Economic Analysis, .

The labor market is showing continued strength: U.S. employers added the most jobs since January—253,000 in April—and the unemployment rate fell to 3.4% last month, matching the lowest reading since 1969. The job market’s continued strength helped quell some concern over the economy as U.S. stocks snapped a four-day skid and all three major benchmarks sharply rose on May 5 after the April jobs data was released. 

Spring is frequently a hot time for the housing market, but this year the market appears to be stuck. In April, new home listings were down more than 20% from a year ago according to data from Realtor.com. The lack of housing units and high mortgage rates, as well as relatively elevated home prices, have kept the affordability of houses low, evidenced by the Mortgage Bankers Association’s Purchase Applications Payment Index increasing in March. 

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The ESI’s three-day moving average began this two-week stretch at 35.4 on April 26. It then trended upward to a peak of 37.4 on April 28, before falling to 35.6 on April 29. The three-day average then oscillated between rising and falling before falling to a low of 33.1 on May 7. It then rose to 35.6 on May 9 to close out the session.

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The next release of the ESI will be Wednesday, May 24, 2023.

Economic sentiment increases for second reading in a row

Economic sentiment slightly increased over the past two weeks, the first increase in sentiment in back-to-back readings this year. The Penta-CivicScience Economic Sentiment Index (ESI) rose 0.2 points to 34.5.

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Three of the ESI’s five indicators increased over the past two weeks. Confidence in buying a new home grew the most, rising 0.9 points to 23.6.

—Confidence in personal finances rose 0.6 points to 54.2.

—Confidence in finding a new job rose 0.6 points to 39.7.

—Confidence in the overall U.S. economy fell 0.9 points to 31.4.

—Confidence in making a major purchase fell 0.3 points to 23.5.

Confidence in buying a new home rose despite home sales falling across the U.S. in March, decreasing 2.4% from the prior month to a seasonally adjusted annual rate of $4.44 million. The slowdown is starting to impact prices—the national median existing-home price had its biggest year-over-year price drop since January 2012, declining 0.9% in March from a year earlier to $375,700, and median prices were down 9.2% from a record $413,800 in June. Although prices have decreased some experts still predict home sales to rise, including Zillow, which is predicting a 1.7% increase in U.S. home values between March 2023 and March 2024. 

Initial claims for unemployment rose to a seasonally adjusted 245,000 the week ending April 22, up from the previous week’s 240,000, but still within the range that claims were in the years before the pandemic. The weekly claims numbers help show that Americans are still enjoying a relatively strong labor market, despite broader economic uncertainty. 

As earnings reporting season kicks off, some of the world’s largest companies will soon report their earnings, which has caused some on Wall Street to be at a standstill until the reports come out. While the major stock indices remained relatively stable over the week leading up to April 24, U.S. Treasury yields declined on April 24 as investors considered the future of the U.S. economy after data released last week was mixed with positive and negative signs. 

These shifts come alongside a pivotal vote to resolve the debt ceiling standoff on Capitol Hill. House Democrats and Republicans are currently at an impasse, and some experts on Wall Street have begun to question the risk of default if the two parties cannot come to an agreement. The exact “X date” for the government defaulting on its debt is still unknown, but the Congressional Budget Office projects that it will occur sometime between July and September 2023. However, weaker-than-expected tax receipts for the April filing could pull that deadline forward.

Experts are attributing a decline in consumer spending to what’s being called a “freight recession” in the U.S. economy, as warehouses report less trucking traffic and a 40% decrease in manufacturing orders. UPS’ earnings statement reflected this economic slowdown, with the company’s CEO saying the fast decrease in sales volume “caused us pause.” 

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The ESI’s three-day moving average began this two-week stretch at a peak of 36.9 on April 12. It then trended downward to a low of 33.0 on April 14, before rising to 36.3 on April 17. The three-day average then fell to 33.9 on April 20 and 21, rose to 34.5 on April 23, and then fell to 33.8 on April 25 to close out the session.

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The next release of the ESI will be Wednesday, May 10, 2023.

Economic sentiment increases after a month of decline

Economic sentiment increased over the past two weeks, for just the second time this year. The Penta-CivicScience Economic Sentiment Index (ESI) rose 1.0 points to 34.3, after a brutal drop in sentiment between mid-February and the end of March.

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Four of the ESI’s five indicators increased over the past two weeks. Following its largest single-reading decrease ever in the last reading, confidence in finding a new job recovered slightly, rising 2.2 points to 39.1. 

—Confidence in personal finances rose 2.0 points to 53.6.

—Confidence in making a major purchase rose 0.6 points to 23.8.

—Confidence in buying a new home rose 0.4 points to 22.7.

—Confidence in the overall U.S. economy fell 0.2 points to 32.3.

The job market continued to show signs of resiliency—adding 236,000 jobs in March and keeping the unemployment rate near constant at 3.5 percent, according to the U.S. Bureau of Labor Statistics. 

Following its release on April 7, the jobs report also caused technology stocks to fall on April 10 over concerns that the Federal Reserve will continue to hike interest rates due to a resilient labor market.

While the jobs added and unemployment rate were evidence of labor market resiliency, there were signs that parts of the economy may face trouble, as the retail sector shed 14,600 jobs in March, after adding 41,300 the prior month, and nearly 9,000 jobs were lost in construction, a sector that gained 12,000 jobs in February. 

Mortgage rates continued to fall, with the average 30-year fixed mortgage dipping to 6.28% as of April 6, down from 6.32% the week prior. Despite the lower rates, the volume of mortgage applications for a home purchase decreased by 4% on a seasonally adjusted basis from one week earlier, according to data for the week ending March 31 from the Mortgage Bankers Association (MBA). 
The IMF and World Bank spring meetings are underway, and on April 11, Treasury Secretary Janet Yellen announced her top priorities for the meetings, highlighting the global economy and Russia’s war in Ukraine as key areas for discussion. Secretary Yellen also displayed “cautious optimism” on the future of the world economy, while many others continue to worry about the impacts of persistent high inflation and inhibited growth.

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The ESI’s three-day moving average began this two-week stretch at 35.5 on March 29. It then fell to 34.9 on March 31, before rising to 35.5 on April 3. The three-day average then trended down to a low of 32.8 on April 7, and then rose to a peak of 37 on April 11 to close out the session.

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The next release of the ESI will be Wednesday, April 26, 2023.

Confidence in job market sees biggest drop since March 2020

Economic sentiment dropped again over the past two weeks as unease about the banking system persisted. The Penta-CivicScience Economic Sentiment Index (ESI) fell 1.9 points to 33.3, the largest drop in the overall index since July 2022. Leading the decline was a collapse in confidence in find a new job—an especially notable development since confidence in the labor market had remained largely resilient over the past six months, even as some other indicators lagged.

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All five of the ESI’s indicators decreased over the past two weeks. Confidence in finding a new job dropped a drastic 5.3 points to 36.9—tied with March 2020 (the onset of COVID lockdowns in the U.S.) for its largest single-reading decrease ever. 

—Confidence in buying a new home fell 1.9 points to 22.3.

—Confidence in personal finances fell 1.7 points to 51.6.

—Confidence in the overall U.S. economy fell 0.5 points to 32.5.

—Confidence in making a major purchase fell 0.1 points to 23.2.

A wave of layoffs over the past two weeks has expanded beyond the tech industry. Amazon, Accenture, LinkedIn, Walmart, and others all announced they would be cutting jobs—with Accenture cutting 2.5% of its total workforce and LinkedIn about 15% of its staff. Recent issues in the banking sector could cause further loosening in the job market, with Fed Chair Jerome Powell telling reporters that “the events of the last two weeks are likely to result in some tightening of credit conditions for households and businesses, and thereby weigh on demand on the labor market and inflation.”  

The substantial drop in confidence in finding a new job has coincided with the collapse of multiple banks and the resulting fallout over the past two weeks. The KBW bank index, which tracks the performance of 24 U.S. banks, fell more than 5% and has lost over 20% of its value this year compared to the small increase in the broader market over the same period. This crisis has renewed concerns of a recession for some experts, including Jay Bryson, chief economist at Wells Fargo, who noted that he “would raise the probability of a recession given what’s happened in the last week.”

Mortgage rates continued to fall as the Fed announced another quarter-point rate hike on March 22. However, there was also improved purchase demand and stabilizing home prices. A geographic divide has emerged in the housing market, with home prices falling in the western United States and rising in the eastern U.S. This trend reflects the impact of COVID-19, as people are increasingly deciding to leave “Zoom towns”—areas that saw population growth during the pandemic.  

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The ESI’s three-day moving average began this two-week stretch at 33.9 on March 15. It then fell to 33.7 on March 16 before rising to 33.9 on March 17. After another dip on March 18 and 19, the three-day average trended upward to 34.1 on March 22. The three-day average then fell to a low of 31.6 on March 24 before rising to a peak of 35.0 on March 28 to close out the session.

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The next release of the ESI will be Wednesday, April 12, 2023.