By Sarah Chaney
Consumers have continued spending on big-ticket items such as
vehicles and homes during the coronavirus pandemic, helping support
the U.S. economy as it battles a surge in cases and renewed
Historically low interest rates are luring in auto and home
buyers, many of whom have higher incomes and firmer job security
than low-wage, service-sector workers hardest-hit during the
recession, economists and industry experts say.
"Looking at the car sales, looking at the retail activity,
looking at the housing data, it has been pointing to a really
bigger recovery story, " said James Knightley, an economist at ING
Groep NV. "If you've got a job and feel pretty secure and you see
your equity holdings rise in value, you're probably still feeling
Mr. Knightley said the big-ticket purchases could weaken if the
rise in coronavirus infections and dialed-back state reopenings
significantly dampen employment and consumers' ability to spend.
Incomes also could take a hit if the federal government doesn't
continue providing expanded unemployment benefits to the millions
of people still out of work because of the crisis, he added.
"I'm just growing a little bit more nervous that after this good
run, we could be in for a softer set of numbers," he said.
Congress is debating whether to extend an extra $600 a week in
unemployment benefits provided by the federal stimulus enacted in
the spring. The aid is scheduled to expire at the end of July.
Solid spending on durable goods -- typically more expensive
products designed to last more than three years -- differs from
previous downturns, when consumers sharply pulled back on these
larger purchases while continuing to spend at service-sector
businesses, according to findings from a Harvard-based nonprofit
Spending on long-lasting, durable goods accounts for about 7% of
gross domestic product. Outlays at service-sector businesses
comprise a much larger share of economic output and were the
hardest-hit businesses by the pandemic. Growth in services will
need to rise much more for the U.S. to achieve a full economic
recovery. In May, consumers increased their spending on services by
5.4%. A Commerce Department report due out Thursday on retail
spending, which covers spending on autos but not houses, is
expected to show a June increase of 5.2%, according to a Wall
Street Journal survey of economists.
Major auto makers reported steep drops in second-quarter sales,
as the pandemic led car plants and some dealerships to close for
extended periods this spring.
Still, sales have improved steadily since bottoming out earlier
in the pandemic and broadly outperformed expectations this spring
and summer. Retail sales of autos were just slightly below
pre-virus forecasts in the week ended July 5, according to J.D.
Power, an auto-industry research firm.
Brandon Merrill, age 32, of Orem, Utah, and his wife, wanted a
vehicle with all-wheel-drive for Utah's snowy winters, and in May
they decided to buy their first new car after seeing online vehicle
advertisements offering low-cost financing deals during the
The loan for the Subaru Crosstrek has an interest rate of 0.9%
for 60 months. "Having such a low interest rate for that long a
time is unheard of," Mr. Merrill said.
Sales of used vehicles have benefited too, with sales about 20%
above J.D. Power's pre-virus forecasts in the week ended July 5,
mirroring past downturns when consumers turned to more affordable
Consumers also are buying pricier vehicles. Sales of new luxury
vehicles were up compared with J.D. Power's pre-virus forecast at
the beginning of July.
"The folks who are able to buy an $80,000 premium vehicle every
two years, they potentially may still be able to do that," said
Thomas King, who leads the data and analytics division at J.D.
Higher-income consumers tend to work in jobs that can more
easily be done remotely, providing them with greater job security
and confidence to make large purchases during the recession.
Lower-income Americans have suffered the brunt of coronavirus
job losses in service sectors like leisure and hospitality. That
means they have less income to spend on cars and don't tend to
qualify for the incentive offers and financing deals that people
with higher incomes tend to, Mr. King said.
Purchases of high-end homes have done relatively well in the
U.S. In May, the luxury market outpaced the rest of the housing
market in price growth and views, according to Realtor.com.
"Stay-at-home orders and social distancing have put a new value
on the extra space," said Danielle Hale, Realtor.com's chief
economist. "We're seeing this in the luxury market as well, which
could mean there is renewed interest from high-end buyers to find a
second-home that is within driving distance from their primary
Home purchases can help propel the broader economy, as they spur
spending on home furnishings, building supplies and garden
New-home sales surged 16.6% in May to an annualized rate of
676,000 units, according to the Commerce Department, just below
levels seen before the coronavirus struck the U.S. economy. New
homes account for a small slice of the U.S. housing market.
Existing-home sales, which account for most purchases, fell in
the same month, but economists and brokerages said they expected
purchases picked up in June.
Real-estate experts and economists point to a rise in mortgage
applications as a sign the broader housing market, which includes
previously owned homes, is seeing heightened activity.
"It's been an insane real-estate market where people are just
itching to buy homes, and there's not enough of them," said Tony
Orlando, a Detroit-based Redfin Corp. agent.
He said homes across price points in the Detroit area have seen
strong demand, particularly more affordable ones. Mr. Orlando was
recently waiting for his client to arrive at a viewing for a
$350,000 house in Troy, Mich., that was just put on the market.
During a 30-minute window, he noted about 15 groups of people
filtered in and out of the home.
"Buyer demand is out of control," Mr. Orlando said. "There's not
Write to Sarah Chaney at email@example.com
(END) Dow Jones Newswires
July 15, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.