The lack of more progress in the job market was behind the decision of Federal Reserve policy makers to refrain from reducing the monthly pace of monthly stimulus. Central bankers said they need to see more evidence of sustained economic strength.
“Conditions in the job market today are still far from what all of us would like to see,” Chairman Ben S. Bernanke said following the Federal Open Market Committee’s two-day session on Sept. 18. “The committee has concern that rapid tightening of financial conditions in recent months would have the effect of slowing growth.”
Speculation the Fed would begin paring the $85 billion monthly pace of bond purchases has pushed up mortgage rates, threatening to slow the recovery in housing.
More Americans indicated in today’s confidence survey that they plan to buy homes and automobiles in the next six months.
The auto industry has been thriving as Americans replace older models and take advantage of dealer incentives, some of which include interest-free financing. Ford Motor Co., General Motors Co. and Toyota Motor Corp. posted U.S. sales gains in August that beat analyst estimates. The annualized pace of motor vehicle sales climbed to 16 million in August, the highest in almost six years, according to data from Ward’s Automotive Group.
While some consumers are spending on big-ticket goods such as new cars and appliances, they may be cutting back elsewhere. Retailers from Macy’s Inc. to Wal-Mart Stores Inc. cut forecasts after missing their second-quarter sales targets.
Clarence Otis, chairman and chief executive officer at Darden Restaurants Inc., owner of the Red Lobster and Olive Garden chains, referred to “guests who need more affordability,” on a Sept. 20 earnings call. “They’ve got to do some more disciplined budgeting, and dining out is one of the things that may be paying a price for that,” Otis said.
Chief executive officers reported a dimmer economic outlook in the third quarter, according to a Business Roundtable survey last week. Fewer company leaders expected a pickup in sales and capital spending in the next six months. Half of the respondents indicated that uncertainty over the budget debate in Washington may keep their companies from hiring.
Deloitte LLP, a New York-based consulting firm, said retail sales may climb as much as 4.5% this holiday shopping season, about the same as last year.
“Rising home prices with steady job creation may buoy consumers,” Daniel Bachman, Deloitte’s senior U.S. economist, said in a statement.
At the same time, it may be difficult for lower-income households to boost spending after a 2 percentage-point increase in the payroll tax at the start of the year. The poverty rate hovered close to a two-decade high, while median household income showed little change, according to a Sept. 18 report from the Commerce Department.