By Joe Higgins, Quest 4 Quality
I have been following America’s economy for more than 60 years and have documented some extraordinary events over that time, but nothing prepared me for what I have witnessed in 2020.
The coronavirus, since March, has become the world’s leading economic indicator, and if some scenarios unfold as many economists believe, we could see an economy that sometimes makes no sense. I am devoting this column to the oddities we are experiencing in today’s economic universe.
First on my list is an industry that is near and dear to all of us in the home goods trade, and that’s housing. Housing is one of the largest sectors in our economy and every new home sale creates demand for most of the products sold by our dealers.
So, what is odd about this business today?
Well, sales of existing homes were up 24.7 percent in July and 13.4 percent in August, and prices were up 8.5 percent — all in the middle of a pandemic! And in the face of the greatest job loss in U.S. history! And with the largest decline in consumer spending ever!
With diminished personal spending and so many homeowners unemployed, you would not expect to see home sales growing so rapidly. What most economists were predicting was a lag in sales. What then is driving this extraordinary spike in sales?
Interest rates, for one. They are now at historically low levels, with a 30-year fixed mortgage in the low 2-percent range and the Fed fund rate at .25 percent. Here is another surprising number: The Builder Confidence Index, which is a reliable predictor of a rise in housing starts, has doubled since April. Plus, there is an extreme undersupply of homes.
All these forces hit at this moment, catching economists completely off guard. I will be watching for the next shift in this industry.
Next is a leading economic indicator that economists use to predict business cycles: automobile sales. You might ask, what is so odd about car sales? Well, through August, car and truck sales were down 19.8 percent from last year, but the price of autos is breaking all-time records.
Economic theory would suggest that a 20-percent drop in demand would spur car dealers to cut prices in order to move old inventory. However, although the pandemic has removed many buyers from the market, those still looking for a car have cut back on many other luxuries in their lives and are now splurging on bigger, costlier vehicles. Also, because interest rates on auto loans are at all-time lows, gas prices are depressed, and there is limited stock, consumers are stepping up to more expensive trucks and SUVs. I have never witnessed auto sales like this.
Part II of “The Impact of Coronavirus” will appear here on Monday.
Joe Higgins is a 43-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant and AVB keynoter. Visit his website, Quest 4 Quality With Joe, at www.q4qwithjoe.com