The elixir of record-low interest rates has helped revive the U.S. markets for housing and autos -- standouts in an economy in desperate need of traction.
Sales of new homes in June ran at their fastest pace in nearly 13 years, leaving builders and the construction workers they employ with bigger backlogs. While the motor-vehicle industry still isn't back to pre-pandemic levels, the pace of car and light-truck purchases accelerated a third straight month to an annualized pace of 14.5 million in July, exceeding economists' estimates.
These are bright spots that President Donald Trump has touted, though with the coronavirus maintaining its grip on activity, the economic recovery will probably prove more uneven. A report last week from ADP Research Institute showed a marked slowdown in hiring during July that suggested the pace of growth is leveling off.
Auto sales "are a key factor in the resurgence of manufacturing," Trump said at a White House briefing last week. "The need to restock depleted shelves will further galvanize the factory sector -- and, we think, very substantially, based on the numbers."
The turnaround in interest-sensitive sectors also coincides with employment rebounds in those industries at a time when some states are dialing back reopenings in a more direct threat to restaurants, hotels and retailers.
"When you think about it, the only thing carrying the economy for the next year or so is going to be consumption and residential investment," said Christopher Low, chief economist at FHN Financial. "Cars and housing are a vital part of both of those."
The coronavirus-induced shutdowns didn't keep the housing market down for long. Helped by the Federal Reserve's quick reduction of its benchmark lending rate, mortgages became more affordable and sales responded in suit. Housing is also benefiting from an exodus from urban areas to suburbs.
"The recovery in new-home demand that we experienced over the course of the second quarter was nothing short of outstanding," Ryan Marshall, chief executive officer at PulteGroup Inc., said on the company's July 23 earnings call. "Led by strong demand among first-time buyers, we saw meaningful improvement across all buyer groups and geographies as the quarter advanced." And it continued into early July, he said.
Now, builders are facing a backlog that's on par with levels seen some 13 years ago, indicating plenty of work ahead and more hiring.
Since the April low for employment, payrolls have increased more than 10% in both the residential building and the residential specialty-trade categories, according to Bureau of Labor Statistics data. Jobs in those two areas are only about 5% shy of pre-pandemic levels.
"If we start building more homes, particularly single-family homes, that will create three to four jobs per home built," said Ryan Sweet, head of monetary policy research at Moody's Analytics.
"It's great that there are certain parts of the economy that are doing well, and that's not atypical in and around a recession with early recoveries, but the heart of the economy -- small businesses, consumer services -- those are the ones that have delivered an enormous blow, and it's going to take time for them to come back," Sweet said.
Employment in the motor-vehicle industry has soared some 37% since April as automakers strove to get production lines back to capacity, though it's down 12% from February, before the economic shutdowns. While leisure and hospitality jobs have come back faster, employment in those areas could well begin to fall again as the virus continues to disrupt.
Manufacturer incentives and to a lesser extent, more older vehicles on the road, are combining to lift sales at a time when inventories are running lean. Dhivya Suryadevara, chief financial officer at General Motors Co., said on the company's July 29 earnings call that inventory stood at 480,000 units as of July 25, down from 810,000 at the end of the second quarter in 2019.
"We continue to take a number of actions to increase production and replenish dealer inventories," Suryadevara said. "We have returned to a normalized run rate in all of our full-size truck plants and are matching supply with demand in our remaining facilities."
The latest survey of manufacturers by the Institute for Supply Management showed lean inventories may be more commonplace throughout the economy. The share of purchasing managers at factories who say their customers' stockpiles are too low was the second-highest in a decade.
Should demand not succumb to various state government pullbacks on their economies, orders and production should continue to pick up. Nonetheless, corporate leaders say they remain cautiously optimistic about the economy through at least the remainder of the year as the health crisis continues to bubble.