The Most Important Number of the Week Is 6.29 Million

(Bloomberg Opinion) -- Consider it the pause that refreshed. When U.S. home sales dropped in August, many viewed the decline as early evidence of “stagflation.” A vital part of the economy, which accounts for some 16% of gross domestic product, was faltering in the face of accelerating inflation, or in this case, fast-rising housing prices.

But then September rolled around and housing prices that were up 13.3% from a year earlier were no longer seen as an obstacle. Sales of existing homes as measured by the National Association of Realtors not only rebounded 7%, more than making up for August’s 2% drop and exceeding economists’ forecasts for a 3.7% gain, but the 6.29 million homes sold at an annualized rate were the most since January. 

There’s no doubt that the economy slowed considerably in the third quarter, with the Commerce Department expected to say next week that GDP expanded at a 2.6% rate in the third quarter, down from 6.7% in the second. The silver lining is that the slowdown has very little to do with consumers, who account for two-thirds of the economy. Instead, it’s more about supply-chain disruptions and the inability to get goods into the hands of shoppers on a timely basis. (Just ask anyone who has been to Disney World in Florida for the theme park’s 50th anniversary celebration, where the lack of merchandise has led to a two-items-per-customer limit on individual items for purchase!) 

This is more evidence that although the economy is experiencing a form of stagflation — the Consumer Price Index rose 5.4% in September from a year earlier — it’s nothing like the kind experienced in the 1970s. Unlike now, consumers then were in no position to handle a price shock, thrusting the economy into recession. Just start with the $2.7 trillion in excess savings Americans have built up since the start of the pandemic, thanks largely to the government’s fiscal stimulus efforts. The extra cash has provided a huge cushion for consumers dealing with higher prices for goods and services. The Federal Reserve’s Beige Book survey of current economic conditions through Oct. 8, which was released Wednesday, showed that a majority of districts noted positive consumer spending.

Or consider the retail sales data for August released by the Commerce Department on Oct. 15. The report showed that sales among a control group that is used to calculate GDP and excludes food services, auto dealers, building-material stores and gas stations rose 0.8%, exceeding the 0.5% estimate of economists surveyed by Bloomberg and well above the pre-pandemic average of 0.3%.

Then there’s the Federal Reserve’s monetary stimulus efforts. Sure, by keeping interest rates at record low levels and pumping $120 billion a month into the financial system the central bank has caused some excesses to develop, which may lead to unintended consequences down the road. For now, though, the moves have helped shore up consumer finances. Thanks in large part to big gains in prices of stocks and other assets such as housing, the Fed said household net worth reached another record in the second quarter, jumping by $5.8 trillion to $141.7 trillion. That brought the increase over the four quarters ended June 30 to $23.2 trillion. The record for any calendar year was $11.6 trillion in 2019.

On top of that, households are spending just 9.18% of their disposable incomes to service debt, down from the peak of 13.2% at the end of 2007, according to the Fed. (The record low was 8.28% in the first quarter.)

It’s not all good news. Large swaths of the economy are being left behind, notably those at the lower end of the income spectrum. Sales of homes priced at $250,000 or less dropped more than 20% in September, while those in the $250,000 to $500,000 range were essentially flat with a small 3% increase; those priced above $500,000 soared more than 20%. And more than 5 million Americans are still without a job compared with the workforce before the start of the pandemic. 

It’s hardly scientific, but it’s still notable that Google Trends query volumes show that although searches for “inflation” are ticking up and are higher than before the pandemic, searches for “coupons” are lower. That would seem odd if consumers are truly concerned about making ends meet. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Robert Burgess is the Executive Editor for Bloomberg Opinion. He is the former global Executive Editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.

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