The fundamental things apply, as time goes by

By Joe Higgins, Quest 4 Quality

•          July retail sales were up 3.1%, the best since January 

•          The 30-year mortgage rate topped out at 7.1%

•          Durable goods orders increased 4.6% as consumer spending shifts back from services

Retail Sales

July’s retail sales numbers were the best since the beginning of this year, a further indication that consumers are still propping up the U.S. economy. Spending rose 3.2% annually despite 10 interest rate increases by the Federal Reserve over the last 17 months.

This month’s spending increased at bars, restaurants and general merchandise stores but dropped at appliance, furniture and other retail channels. According to the Census Bureau’s July sales figures, the back-to-school business, including books, backpacks and clothing, was brisk. 

See: Consumer Spending Slowing: Report

Consumer savings have fallen substantially this year as the money given out during the government’s stimulus spending during the pandemic has nearly all dried up. This could derail further expansion. However, over the past three years the labor market has added over 13 million jobs with increasing wages. This will support more spending over the next two quarters. 

I expect that the travel, leisure and recreation sectors will begin to slow after the kids return to school, and Americans will revert to buying durable goods.

Consumers have spent much of the past year on expensive services like travel, shows, ball games and dining out. During this time, durable goods, like those our dealers sell, slowed. As the personal savings rate has declined, Americans have reassessed their priorities and are starting to spend more on goods. June’s durable goods orders were up 4.6%, the highest in over 12 months. 

Mortgage Rates

Think back to April 2002 when the Patriots clinched the Super Bowl, the Astros won the World Series and the stock market cratered. Prior to these events, interest rates peaked at 7.3%, which is the highest rate we’ve seen in the past two decades. But is approaching the current national rate for a 30-year home mortgage of 7.16%, which is up from 7.09% from the week before. (A year ago, mortgage rates hit 7% but quickly fell back to 6.5%.)

We still feel the impact of the Fed’s decision to raise interest rates from near zero to 5.25%, which puts pressure on mortgage rates. It also puts pressure on housing as most home buyers and sellers pull back from a 7% mortgage rate and do not begin to wake up until it drifts below 6%. Housing is one of the largest sectors in the U.S. economy, so the industry’s issues negatively affect many consumers looking to buy a home.

Homeownership is becoming a dream, not a reality, as fewer Americans have neither the income nor savings to afford a home in this market. This problem is not going away; by the looks of current mortgage rates, it will only get worse. The national shortage of homes, the extreme affordability issues and the rise in interest rates will impact our dealers’ businesses for the balance of 2023. 

The Bottom Line

Do not be discouraged, though. The economy is still doing well when looked at through the numbers. The Consumer Confidence Index is at a four-month high of 117, up more than 15 points since May, and rising levels of confidence usually lead to increased spending and economic growth. In fact, consumer spending has been up over 2% year to date. This is quite remarkable given the Fed’s actions to slow things down.

What’s more, unemployment is near a 50-year low at 3.6% with solid job creation numbers over the past six months, and GDP was positive in the first and second quarters, averaging about 2.3%, roughly our 10-year average. You might be wondering about GDP growth for the current quarter; the Atlanta Fed’s “GDP Now” forecast for Q3 predicts an increase of 5.8%! That number is hard to believe, but they have been accurate over the past few years. 

Given all that, it looks like we could end the year on a high note.

Joe Higgins is a 46-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at

Upcoming Events