The last-minute legislation that Congress passed this week helped the Federal government stay open, and saved the salaries and payment to hundreds of thousands of Americans, so that the Federal government can operate at normal speed until November 17.
During the two-week 2013 shutdown, 40% of Americans cut their spending, while Goldman Sachs projected that a shutdown would reduce economic growth by around 0.15% for each week that a shutdown would last.
But American consumers may still have economic woes. High interest rates, the resumption of student loan payments, and rising gas prices have tamped down consumer confidence over the last couple of months, according to a recent report from the California Association of Realtors (CAR).
The report also pointed out that August sales of newly constructed single-family homes pulled back as rising mortgage rates began to have an effect on new housing demand.
New home sales declined 8.7% in August from July’s 739,000 units but increased 5.8% from 638,000 units recorded in August 2022, said CAR. Home prices also dipped slightly from 12 months ago, with last month’s median registering $430,300, a drop of $10,000 from a year ago, due in part to “builders using price cuts as incentives to reinvigorate buyer interest as mortgage rates continued to climb,” said the report.
The recent surge in rates is also adding more stress to buyers and could take the momentum out of new housing demand, said CAR, and increased costs of borrowing may continue to slow sales in September and October as market indicators showed a decline in buyer traffic in both August and September.
At the same time, said the report, an improving inflation outlook and a still-solid labor market should help the economy, the report noted, saying that the housing market should weather fourth quarter headwinds and carry them to a stronger year, as rates begin dropping.
The annual increase in prices, excluding food and energy, came in at 3.9% in August, the first time it dropped below 4% since June 2021. The core PCE price index – the Fed’s preferred inflation gauge – rose less than expected and had the smallest growth pace month-over-month since November 2020.
The core PCE (“Personal Consumer Expenditure”) price index is a measure of prices that people living in the United States, or those buying on their behalf, pay for goods and services, according to the Bureau of Economic Analysis. It is sometimes referred to as the core PCE price index, because two categories that can have price swings – food and energy – are excluded to make underlying inflation easier to see.
Meanwhile, the CAR report noted that the optimism has not quite carried over to the mortgage finance arena.
The average 30-year fixed rate mortgage dropped 16 bps last Friday after the release of the inflation news, but surged back up by 17 bps on the following Monday.
The CAR report noted, however, that “solid evidence of an economic slowdown will need to be seen before rates start coming down meaningfully.”
Rising oil prices heading into the fourth quarter could also keep the overall inflation high in September and October. But California could see some relief, as an earlier switch to the cheaper winter-blend of fuel was approved by the California Air Resources Board (CARB) last Thursday.
In his letter to CARB, Governor Gavin Newsom wrote, “California refiners are required to produce summer-blend gasoline through October in most areas of the State. After October 31, a winter-blend gasoline is allowed.”
But he added, “In light of the price spikes, we should not wait until the end of the month to start distributing or to ramp up production of our winter-blend gasoline.”
Amidst it all, the Conference Board’s Index fell to a four-month low, the biggest monthly decrease since December 2020, perhaps suggesting that Americans were still troubled by their short-term outlook.
