Data on US economy send conflicting signs

The US economy is sending mixed signals.

While third-quarter GDP growth is forecast at only 0.3 percent after two quarters of retraction — according to the most recent data from the Atlanta Fed's GDP Now model — consumer confidence is rising.

The Conference Board said Tuesday that its consumer confidence index rose to 108 in September from 103.6 in August, helped by a drop in gasoline prices. The index also rose last month following three straight monthly declines as American households were hit by rising prices on food and at the gas pump.

Analysts surveyed by data provider FactSet had expected consumer confidence to rise slightly as gas prices have fallen from highs this summer of more than $5 per gallon. The AAA motor club says the average price for a gallon of gas in the US fell to $3.75 on Tuesday.

Lynn Franco, the Conference Board's senior director of economic indicators, said that consumers' purchasing intentions for big-ticket items were mixed. More people said they expected to buy cars or big appliances in the near future, but fewer said they intend to buy a house anytime soon, as rising interest rates have added hundreds of dollars a month to mortgage payments.

Last week, mortgage buyer Freddie Mac said the average rate on a 30-year mortgage rose to 6.29 percent, the highest level since October 2008, when the housing market crashed.

But even with those rising mortgage rates, housing sales rose unexpectedly.

Sales of new US single-family homes increased in August, but the rebound is likely temporary due to the high mortgage rates.

Sales increased in all four regions, accelerating 66.7 percent in the Northeast. Economists polled by Reuters had forecast new-home sales, which account for about 10 percent of US home sales, declining to a rate of 500,000 units.

And although sales were up, the S&P CoreLogic Case-Shiller Indices, the leading measure of US home prices, showed that the rate of increase in housing prices decelerated in July.

"Although US housing prices remain substantially above their year-ago levels, July's report reflects a forceful deceleration," says Craig J. Lazzara, managing director at S&P Dow Jones Indices. "For example, while the National Composite Index rose by 15.8 percent in the 12 months ended July 2022, its year-over-year price rise in June was 18.1 percent. The -2.3 percent difference between those two monthly rates of gain is the largest deceleration in the history of the index."

"The leap in new-home sales is either unbelievable … or unsustainable," Pantheon Macro chief economist Ian Shepherdson said in a note after the release, adding that the surge could reflect a rush of purchases by people who locked in rates as they began to rise last month, forbes.com reported.

John Fish, the CEO of Suffolk Construction, said the housing market volatility is a "possible indicator we are in the early stages of a recession", though he added it's "too soon to predict how long or severe" a recession could be, Forbes reported.

"Looking ahead, the improvement in confidence may bode well for consumer spending in the final months of 2022, but inflation and interest-rate hikes remain strong headwinds to growth in the short term," the Conference Board's Franco said.

Another possible threat to consumer confidence is the Fed's stated goal to reduce employment to rein in inflation of 8-9 percent recently.

"We think we need to have softer labor market conditions," Fed Chair Jerome Powell said after the rate-hike announcement on Sept 21. "I wish there were a painless way to do that. There isn't."

The Fed has raised interest rates five times since March, putting its target rate in a range of 3 to 3.25 percent.

"To reduce inflation to acceptable levels, it will be necessary to destroy between 1.7 million and 5.3 million jobs, in our estimation," Chief Economist Joe Bruselas at global tax consultant RSM wrote, according to Fox News. "The policy implications are stark."

Minneapolis Fed President Neel Kashkari, during a Wall Street Journal online event Tuesday said, "The one mistake that I'm acutely aware of — that I want to avoid repeating from the 1970s — is when policymakers saw the economy weakening, saw inflation start to tick down, and then they cut rates, thinking they had done the job. And then inflation flared back up again — that, I believe, is a mistake we cannot make and will not make."

Agencies contributed to this story.