After one rise, economic sentiment resumes downward trajectory

Economic sentiment decreased over the past two weeks, having now fallen for three of the past four readings. The Penta-CivicScience Economic Sentiment Index (ESI) fell 0.4 points to 33.0.

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Four of the ESI’s five indicators decreased over the past two weeks. Confidence in the overall U.S. economy decreased the most, falling 1.4 points to 32.3.

—Confidence in making a major purchase fell 1.3 points to 21.6.

—Confidence in finding a new job fell 0.4 points to 38.8.

—Confidence in personal finances fell 0.2 points to 51.6.

—Confidence in buying a new home rose 1.5 points to 21.0—rebounding after reaching its lowest point since November 2022 last reading.

America is facing a government shutdown, an auto workers strike, the resumption of student loan payments for 45 million borrowers, rising oil prices, and high borrowing costs. While a shutdown on its own likely would not sink the economy, the convergence of these challenges is driving skittishness. 

EY Parthenon predicts that each week of the government shutdown alone will cost the U.S. economy $6 billion and will decrease GDP growth by 0.1 percentage point in Q4 (in annualized growth terms). Additionally, a Bank of America report expects that the auto strike itself will most likely decrease GDP growth by 0.1 to 0.2 percentage points per week.

The Federal Reserve opted not to raise interest rates on September 20, holding the rates unchanged within the range of 5.25% to 5.5%. This move signals growing confidence in the possibility of a soft-landing, although the Fed is expected to raise rates one more time in 2023.  

Labor market tightness continues, even as job growth cools. A Department of Labor report showed that initial claims for state unemployment benefits dropped by 20,000, from 221,000 to 201,000 claims for the week that ended January 16. 

However, there could be a sharp increase in claims as the United Auto Workers strike continues. While striking workers are ineligible for unemployment benefits, the strike has impacts on the supply chain. Ford furloughed 600 workers not on strike, GM is expected to stop operations at its Kansas City plant, and Stellantis said it would temporarily lay off 68 employees and expects to furlough another 300.

Pending home sales for the four weeks ending September 17 were down 12.7% year-over-year, according to Redfin. The average 30-year fixed mortgage rate remained at 7.47%, nearly even with the two decade high of 7.49% that was reached last month.
Despite high mortgage rates and prices the shortage of supply has kept the market competitive, as the average home was sold within 20 days of hitting the market and 31% of homes sold for more than their list price.

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The ESI’s three-day moving average began this two-week stretch at 33.9 on September 13. It fell to 32.7 on September 15 before rising to 34.6 on September 16. The three-day average then fell to 33.7 on September 17 before rising to a peak of 35.2 on September 18. It then trended downward to a low of 31.3 on September 22 before rising to 33.0 on September 26 to close out the session. 

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The next release of the ESI will be Wednesday, October 11, 2023.

Economic sentiment rebounds after three consecutive drops

Economic sentiment increased over the past two weeks after reaching its lowest point since October 2022 last reading. The Penta-CivicScience Economic Sentiment Index (ESI) rose 0.9 points to 33.4.

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Three of the ESI’s five indicators increased over the past two weeks. Confidence in the overall U.S. economy increased the most, rising 2.8 points to 33.6—its second largest single-reading increase of the year.

—Confidence in making a major purchase rose 1.3 points to 22.5.

—Confidence in personal finances rose 0.6 points to 51.8.

—Confidence in finding a new job fell 0.3 points to 39.2.

—Confidence in buying a new home fell 0.4 points to 19.5—its lowest point since November 2022.

A series of reports showing better than expected performance for the U.S. economy on a number of different metrics has led economists to boost their GDP forecasts and raised questions as to whether the Federal Reserve’s GDP forecasts will be adjusted as well. 

An unofficial estimate produced by the Atlanta Fed has GDP expanding 5.6% on an annualized basis in the third quarter—a sharp departure from the Federal Reserve estimate from three months ago. Although the Atlanta Fed’s estimate is unofficial, it highlights the change in sentiment occurring among economists. 

The Feds effort to bring down inflation saw positive signs as the Commerce Department’s second estimate for the second quarter of 2023 showed that U.S. GDP grew at an annualized rate of 2.1%, slightly down from the initial estimate of 2.4%. Gross domestic income showed an even smaller expansion, growing at only a 0.5% annual rate in Q2. 

Averaging the GDP and GDI—a common way to split the difference between the two—shows 1% growth over the last year, which places it in the sweet spot of the Fed’s goal. 

High interest rates likely impacted consumer spending in August, as Visa’s U.S. Spending Momentum Index fell to 97.2 in August (seasonally adjusted).

Additionally, the unemployment rate rose to 3.8% in August, driven in part by an increase in the labor force participation rate, without a massive round of layoffs. Treasury Secretary Janet Yellen noted that some loosening of the labor market is “important and a good thing.” 

Acting U.S. Labor Secretary Julie Su said the job growth slowdown shows the economy is shifting from the recovery of pandemic-era job losses to “continued stable, steady growth,” which is what is needed to achieve a soft landing. 

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The ESI’s three-day moving average began this two-week stretch at 31.8 on August 30. It fell to 31.6 on September 1 before rising to a peak of 35.6 on September 5. The three-day average then trended downward to a low of 31.5 on September 9 before trending up to 35.5 on September 11 to close out the session. 

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The next release of the ESI will be Wednesday, September 27, 2023.

Economic sentiment drops to 2023 low

Economic sentiment decreased over the past two weeks, reaching its lowest point since October 2022. The Penta-CivicScience Economic Sentiment Index (ESI) fell 1.5 points to 32.6.

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All of the ESI’s five indicators decreased over the past two weeks. Confidence in personal finances decreased the most, falling 2.5 points to 51.2—its largest single-reading decrease in more than a year.

—Confidence in the overall U.S. economy fell 2.2 points to 30.9—its lowest level in more than a year.

—Confidence in buying a new home fell 1.6 points to 19.9.

—Confidence in making a major purchase fell 0.8 points to 21.2.

—Confidence in finding a new job fell 0.4 points to 39.5.

On August 25, Fed Chair Jerome Powell said that the Federal Reserve may need to raise interest rates further to combat inflation, although he noted the progress made on price pressures and risks from the surprising strength of the U.S. economy.

The strong growth of the U.S. economy stands in contrast with other economies and could mean the U.S. is raising interest rates as other countries enter rate cutting cycles. For instance, China has seen its growth fall from an 8% annual pace to a projected 3% for the rest of the year and both it and Chile have already begun cutting interest rates while others are expected to follow. 

Meanwhile, the housing market remains undersupplied for current demand. The lack of supply is due to a number of factors, including mortgage rates (the 30-year average rate currently stands at 7.23%, a 22-year high)—which are especially high when compared to the lower rates most homeowners locked in before the current hiking cycle began: more than nine of every 10 U.S. homeowners with mortgages pay an interest rate below 6%. Total existing-home sales decreased 16.6% in July compared to a year ago and their sales price rose 1.9% from one year ago to $406,700. Elevated mortgage rates and the relatively low supply are the primary drivers of the low number of sales. 

According to data from the Bureau of Labor Statistics, U.S. job growth for the past year was weaker than expected, although still very strong. The agency reduced its March 2023 employment gains estimate by 306,000 jobs in its most recent revision, which amounts to about 25,000 fewer net jobs added per month when spread throughout the past year. 
According to the Financial Times, economists are predicting the next jobs report, to be released September 1, will show non-farm payrolls grew by about 170,000 in August, which would mark the slowest rate since January 2021.

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The ESI’s three-day moving average began this two-week stretch at 32.9 on August 16. It rose to 33.3 on August 19 before trending downward to 32.1 on August 21. The three-day average then rose to 32.7 on August 22 before falling to a low of 31.1 on August 25. To close out the session, the three-day moving average trended up to 34.2 on August 29.

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The next release of the ESI will be Wednesday, September 13, 2023.

Is the summer of good feelings coming to an end?

Economic sentiment decreased over the past two weeks, possibly marking the end of a period of relatively high sentiment that began in mid-June. The Penta-CivicScience Economic Sentiment Index (ESI) fell 1.4 points to 34.0—the third-largest decline of the year.

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All of the ESI’s five indicators decreased over the past two weeks. Confidence in making a major purchase decreased the most, falling 2.7 points to 21.7—its largest single-reading decrease in more than a year.

—Confidence in the overall U.S. economy fell 2.3 points to 33.1.

—Confidence in finding a new job fell 1.0 points to 39.9.

—Confidence in personal finances fell 0.4 points to 53.7.

—Confidence in buying a new home fell 0.2 points to 21.5.

On August 1, Fitch Ratings cut the U.S. debt rating from AAA to AA+ due to alarm over the U.S.’ deteriorating finances and concern about the government’s ability to tackle the growing debt crisis, which contributed to the Dow Jones Industrial Average falling more than 300 points. 

Meanwhile, data from Bank of America shows that the number of people who made a hardship withdrawal from their 401(k) account during the second quarter rose to 15,950, an increase of 36% from the second quarter of 2022. 

The rate of new credit card delinquencies exceeded its pre-COVID level, reaching 7.2% in the second quarter as Americans’ credit card debt surpassed $1 trillion for the first time ever, according to a report out this month from the New York Fed.

The labor market is showing some signs of cooling as it added 187,000 jobs in July according to the U.S. Bureau of Labor Statistics—below the 200,000 that economists had predicted. However, the unemployment rate remained at a near-record low of 3.5%. 
According to Redfin, the total value of U.S. homes reached a record $46.8 trillion in June, surpassing the previous all-time high of $46.6 trillion set a year earlier. Mortgage rates are also  increasing—the average rate for a 30-year fixed mortgage is 7.53% as of August 14, up 15 basis points from a week prior.  High mortgage rates are contributing to the shortage of homes for sale, which is elevating home values.

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The ESI’s three-day moving average began this two-week stretch at 35.3 on August 2. It rose to a peak of 35.8 on August 3 before trending downward to a low of 32.8 on August 6. The three-day average then rose to 35.7 on August 8 before falling again to 32.8 on August 12. To close out the session, the three-day moving average rose to 34.0 on August 15.

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The next release of the ESI will be Wednesday, August 30, 2023.

Economic sentiment falls as Fed hikes rates

Economic sentiment decreased over the past two weeks, a period marked by news of potential economic softening and a further Fed rate hike. The Penta-CivicScience Economic Sentiment Index (ESI) fell 0.6 points to 35.4.

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Three of the ESI’s five indicators decreased over the past two weeks. Confidence in buying a new home decreased the most, falling 2.2 points to 21.7—its second largest single-reading decrease in more than a year.

—Confidence in finding a new job fell 1.5 points to 40.9.

—Confidence in the overall U.S. economy fell 0.4 points to 35.4.

—Confidence in personal finances rose 0.1 points to 54.1.

—Confidence in making a major purchase rose 0.9 points to 24.7.

While the labor market has remained strong, June’s job report was the first time monthly job gains came in below expectations in 15 months, and some experts are predicting the slowdown in job growth to continue in July.  For instance, JPMorgan chief economist Michael Feroli wrote “[w]e look for the slowing to continue next week and expect 175,000 job growth, with 140,000 of those coming from the private sector.” 

Despite the expected slowing job growth, jobless claim applications—a proxy for the number of layoffs in a given week—fell to its lowest total in five months the week of July 27 and the number of job openings remained little changed at 9.6 million as of the last business day of June. 

According to the Bureau of Labor Statistics, consumer prices rose 3% in June compared with the year before—the smallest 12-month increase since March 2021. Although the data was promising, the Federal Reserve still approved its highly anticipated rate hike, raising the federal funds rate by a quarter percentage point to a target range of 5.25%-5.5%—its highest level in more than 22 years. 

High interest rates have been a major contributor to gridlock in the housing market—buyers and homeowners took advantage of historically low rates to purchase homes or refinance mortgages and lock in lower borrowing costs before the current hiking cycle.

The low existing home inventory—about half of what it was four years ago—is also contributing to an affordability issue. The median existing-home price has risen for six-straight months to $410,200 in June—the second-highest price of all time, according to the National Association of Realtors. 

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The ESI’s three-day moving average began this two-week stretch at a peak of 37.1 on July 19. It then trended downward to 35.5 on July 21 before rising to 37.1 on July 24. The three-day average then fell to a low of 34.1 on July 27, rose to 35.2 on July 28, and fell again to 34.3 on July 29. To close out the session the three-day moving average rose to 35.5 on August 1.

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The next release of the ESI will be Wednesday, August 16, 2023.