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Tags: home | sales | prices | economy

Services Demand Is Real Indicator of Consumer-Spending Health

Services Demand Is Real Indicator of Consumer-Spending Health
(Dollar Photo Club)

Joel Naroff By Friday, 21 August 2020 03:56 PM Current | Bio | Archive

INDICATOR: July Existing Home Sales and New Home Pending Sales

KEY DATA: Sales: +24.7%; Over-Year: +8.7%; Prices (Over-Year): +8.5%/ Pending Sales: +5.3%; Over-Year: +32.7%

IN A NUTSHELL: “Home sales and prices are soaring and the end is nowhere in sight.”

WHAT IT MEANS: The stock market and California are not the only places on fire: Housing is just as hot. The National Association of Realtors reported that existing home sales skyrocketed in July to the highest level in nearly fourteen years. The surge in demand was across the nation, with gains in the thirty percent range for The Northeast, Midwest and West and over nineteen percent in the South. Homeowners are seeing the strong market and are listing their houses, but with mortgage rates low and demand jumping, the supply of houses, at 3.1 months at current selling rate, is the lowest on record. That led to a sharp rise in prices, to its highest level on record. Amazing.

And the new home market looks like it is just as strong. Meyers Research reported that their New Home Pending Sales Index also jumped in July. New home demand was up sharply in June and it is likely it will post another major rise when the July data come out next Tuesday.

IMPLICATIONS: Housing is one of the most important sectors in the economy as home construction and sales touch firms in a variety of industries. When the housing market booms, sales of products related to homes rise significantly as well.

The low mortgage rates have induced people to buy, buy, buy, but the sharply rising prices are a warning that the market may be getting a little ahead of itself. Still, I will take any positive data that shows people are willing to spend money, especially on big-ticket items.

Looking forward, we need consumers to keep spending. While those who can and do work from home are mostly doing fine, the number of people unemployed remains in the double-digits. That raises questions about consumption of nondurable goods and services.

Services are about two-thirds of all household spending and it has been the weakest link. Since February, total consumption has declined nearly seven percent. Almost 90 percent of that drop was due to lower spending on services.

So, if you want to know if the consumer is coming back, you have to pay attention to services demand. And that requires all income classes picking up the pace. With everything going on, I am not sure how quickly that will occur, especially since we are just getting into the ugliness of the presidential campaign. That cannot be good for consumer confidence.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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JoelNaroff
Housing is one of the most important sectors in the economy as home construction and sales touch firms in a variety of industries.
home, sales, prices, economy
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2020-56-21
Friday, 21 August 2020 03:56 PM
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