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Consumer confidence moves higher

January 27, 2021

Graph depicting the trough in the spread between the jobs plentiful and jobs hard to get indices

Source: The Conference Board

Consumer confidence rose for the first time in three months in January, a 2.2-point increase to 89.3, as a pickup in expectations offset a drop in current conditions sentiment. The spread between the two components is now back in positive territory and at its widest level in seven months, hinting that the soft patch may be nearing an end. The other big story here continues to be the relatively sanguine attitude toward the labor market. There were fewer respondents characterizing employment as “plentiful” and more calling jobs “hard to get” this month as would be expected given the recent dislocations, but at -3.2 the spread between the two remains unusually high given the stage of the broader recovery and the prevailing unemployment rate. In fact, the labor differential metric has fallen below -30 in the first year of six out of the last seven expansions and typically doesn’t rise above zero – as it did last fall – until four to five years on average into the cycle. This break from the historical norm is very likely a function of the K-shaped nature of the recovery and it has in turn significant implications for the pace of consumer spending as the pandemic recedes.

Home prices continue to soar

Case-Shiller’s home price index rose 9.5 percent year-over-year in November, the fastest growth rate since 2014. Homes are still not appreciating at quite the pace of the peak boom period in the mid-2000s – the Case-Shiller index advanced at a double-digit clip for more than two years from 2004 to 2006 – but the recent trend is very much in line with the early stages of that run. And while lending standards are not nearly as lax as they were a decade and a half ago, mortgage rates are much lower today (the average 30-year fixed rate is currently more than 200 basis points south of the low-water mark in 2003) and the labor market has the potential to eventually be much tighter. We have made the point here before on several occasions, but it bears repeating: the extremes of the last three cycles – a runaway stock market in the 1990s, a housing boom in the 2000s, and aggressive monetary policy and an ultra-tight labor market in the 2010s – may well all be repeating to varying degrees in this one.

Daily Trivia

What occupation accounted for the greatest share of manufacturing employment in the U.S. at the end of the Industrial Revolution?

Previous Question

What central bank regularly adjusted benchmark rates by multiples of nine until the 2010s, in part to simplify interest calculations on an abacus?

Answer:

People’s Bank of China

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