U.S. Confidence, Home Sales Drops Underscore Risks to Growth

Data from across the U.S. economy this week highlighted the risks to growth amid rising trade tensions and pressure on the Federal Reserve to cut interest rates.

While it may still be too early to say growth is stalling — previous data showed pickups in May retail sales and factory output – the latest figures join weaker readings on jobs and other signs President Donald Trump’s trade policies are weighing on an expansion on the verge of becoming the longest in U.S. history. Tariffs are spurring potential hesitance on the part of consumers, whose spending accounts for the majority of gross domestic product.

“It’s certainly consistent with a loss of upward momentum” and adds to arguments for easier monetary policy, Joshua Shapiro, chief U.S. economist at MFR Inc., said after Tuesday’s indicator releases. Consumers understand that they’ll ultimately pay the price for tariffs either through higher prices or businesses cutting costs, he said.

A gauge of U.S. homebuilder shares reversed earlier gains, declining along with broader stock benchmarks. Treasury yields fell, with 10-year notes dipping below 2% and heading for the lowest close since 2016.

Chairman Jerome Powell said in a speech later Tuesday that the downside dangers to the economy have increased recently, reinforcing the case among policy makers for somewhat lower interest rates. St. Louis Fed President James Bullard, who votes on policy this year, said in a Bloomberg Television interview that it’s a “good time” for an insurance rate cut.

Consumer Confidence (June)

The Conference Board’s index fell to 121.5, the lowest since September 2017 and below all forecasts in Bloomberg’s survey, as respondents grew less optimistic about the economy and employment. The share of respondents who said jobs were hard to get climbed to 16.4%, the highest since November 2017. Buying plans for autos and appliances also slipped.

“The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence,” the Conference Board’s Lynn Franco said in a statement.

Sales of new U.S. homes fell to a five-month low, adding to signs of weakness despite lower mortgage rates. Single-family home sales dropped 7.8% to a 626,000 annualized pace that missed all estimates in Bloomberg’s survey of economists, government data showed. The median sales price decreased 2.7% from a year earlier to $308,000.

Home Prices (April)

Home-price gains in 20 U.S. cities decelerated in April for a 13th straight month to the weakest pace since 2012, indicating further moderation in the housing market, particularly in once-hot West Coast areas. The S&P CoreLogic Case-Shiller index of property values increased 2.5% from a year earlier, matching estimates, following 2.6% in March. Nationally, home prices decelerated to a 3.5% pace.

“This is part of a broader softening in the housing market that is also evident in starts and sales activity,” Blerina Uruci, a U.S. economist at Barclays in Washington, wrote in a note. “We think deteriorating home affordability and increasing mortgage interest rates helped to slow the housing market in 2018 and represent headwinds for this year. We expect housing to plateau at current levels throughout 2019, rather than deteriorate further.”

A separate index released Tuesday by the Federal Housing Finance Agency showed prices rose 5.2% in April from a year earlier, the first increase in almost a year. The gain from March was 0.4%, higher than the median estimate of 0.2%. The measure tracks purchases or securitizations of conforming, conventional mortgages by Fannie Mae or Freddie Mac.

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