September 26, 2020

Consumer Confidence Slips From 6-Year High

Data reported on Friday suggested that a recent jump in interest rates, in anticipation of the Federal Reserve’s tapering its bond purchases as early as next month, was starting to weigh on households.

“People have been shocked by how much mortgage rates have risen in the past couple of months. The chatter about the Federal Reserve is also a big deal,” said Christopher Low, chief economist at FTN Financial in New York.

The Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment slipped to 80.0 from July’s six-year high of 85.1. August’s reading was the lowest in four months.

The survey’s barometer of current economic conditions fell to 91.0 in August from 98.6 the month before. The gauge of consumer expectations slipped to 72.9 from 76.5 in July.

In a separate report, the Commerce Department said housing starts rose 5.9 percent, to a seasonally adjusted annual rate of 896,000 units. That was just below economists’ expectations for a 900,000-unit rate.

Permits to build homes rose 2.7 percent in July, to a 943,000-unit pace. Economists had expected them to rise to a 945,000-unit pace.

“I think we are looking at a situation where some air is coming out of the housing recovery given the higher mortgage rates,” said Michael Hanson, senior economist at Bank of America Merrill Lynch in New York.

Long-term interest rates have risen by more than a full percentage point over the last three months on the view that the Fed will soon start trimming the $85 billion in monthly bond purchases that it has been making to keep borrowing costs low and stimulate the economy.

That in turn has prompted a rise in mortgage rates, which threatens to sap some of the strength from a housing recovery that has been pushing prices higher for more than a year.

Economists expect the Fed to make an announcement on tapering next month.

Data this week for industrial production, residential construction and employment have missed market forecasts, which could lower expectations for a significant pickup in growth in the second half of the year.

The economy grew at a rate of only 1.4 percent in the first half of 2013, held back by tighter fiscal policy.

Aside from higher mortgage rates, the residential construction figures last month could reflect supply constraints. Builders have been complaining about a shortage of labor and materials.

Still, home building remains on a firmer footing and should again contribute to economic growth this year.

A report on Thursday showed confidence among single-family homebuilders neared an eight-year high in August, with builders fairly upbeat about sales prospects over the next six months.

Though residential construction accounts for only about 3.1 percent of gross domestic product, housing has a wider reach in the economy. Analysts estimate that for every single-family home built, at least three jobs lasting a year are created.

Economists expect average monthly housing starts for the whole of 2013 to top one million.

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