When you add up all the economic woes, fears and worries that are being dramatized daily you can understand how American consumers might be getting into a psychological funk.
There are job woes, profit woes, investment woes, power woes, health care woes. And fears that the economy could fall into recession and that layoffs will rise. And off in the distance, worries about retirement.
So many woes that you begin to think that maybe the woes are being over-publicized. Most Americans, it seems, are still able to force a smile. They have jobs. They are taking vacations.
Still, you can’t ignore that there are worries out there and that when people worry they tend to forget their job of getting and spending and thus providing a catalyst for keeping the economy going.
The latest hard evidence of a decline in confidence is reflected in the housing market, with the annual rate of new home sales falling by 9.5 percent in April, the biggest monthly decline in four years.
This can be significant, not just because of the decline’s extent but because housing is a pretty special economic indicator. To buy or not buy a home, for example, isn’t comparable to buying or not buying a TV set.
Homeownership is an almost universal aspiration. It is perhaps the biggest financial decision faced by families. It requires long preparation. And once made, a decision to buy isn’t easily postponed.
Delaying that decision is more difficult when you consider that lenders these days promote the idea that now is a once in a lifetime opportunity because mortgage rates are down more than a percentage point in the past year.
Housing is significant also because its economic effect is so broad.
The National Association of Home Builders estimates that the creation of 1,000 single-family houses generates 2,448 jobs in construction and related industries, providing $80 million in wages.
It involves scores of suppliers — lumber, siding, air conditioning, cement, paint. Its spending impact is both local and national. And when a family moves in, they spend more money on furnishing.
For these reasons, home sales are both a barometer of existing economic conditions and of things to come. And so it behooves us to know if we should add its April declines to the list of woes.
Maybe not, and for at least a couple of reasons:
• The homeownership rate now is just a tad under 70 percent, probably the highest ever. The upper limit is unknown, but we do know many people prefer renting, and that you can’t push ownership forever higher.
• Home building and sales, the latter for both existing and new homes, have been running at record or near-record highs for the past few years, despite the economic slowdown. Any decline is from a very high level.
Moreover, the broad economy may still be feeling the slowdown effects of last year’s interest rate increases, and not yet reflecting the more recent cuts in borrowing rates.
In this context, a housing decline is as understandable – perhaps more so – than a continued rise in activity. And there is even an encouraging aspect to it, it being that a some relief from ever-higher housing prices.
Don’t add housing too quickly to the list woes. There’s enough of them. The slowdown in April might even help provoke the Federal Reserve into lowering interest rates again.
John Cunniff is a business analyst for The Associated Press