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Interest Rates Impact Housing Starts and Sales NAHB notes that overall lower housing production corresponds with their latest industry surveys, which show builders are concerned with a high interest environment that is making it harder to get the loans for acquisition, development and construction they need to increase building activity. Higher rates for builder and developer loans, along with ongoing supply-side challenges finding construction labor and buildable lots creates a brisk headwind for new home and apartment construction. Stubbornly high mortgage rates are keeping many homeowners on the sidelines. People who don’t have to move are waiting for rates to come down, which benefits both buyers and sellers. Higher rates mean people can afford less house than they could just a few years ago. Shelter inflation is up 5.4% year over year, making it difficult for the Fed to get to their target inflation rate of 2%, which means rates stay higher. The best way cut shelter inflation and bring overall inflation down is to increase the housing supply; to do that, builders need better rates. Freddie Mac forecasts that home sales will remain muted and expects home prices to continue to increase through 2025. They expect rates to remain above 6.5% through the end of the year. Fed Can Influence Interest Rates without Cutting Them The Federal Reserve has revised expectations for interest-rate cuts in 2024 from three to just one, but the central bank has other, more subtle tools that could decrease rates to benefit businesses and households. The Fed can sway rates by communicating intentions, even without cutting the base rate, because the market often moves on expectations. The yield on the 10-year Treasury has a strong influence on long-term loans, and the yield declined from 4.7% in late April to 4.3% after the Fed's latest rate decision. Any further moves should improve conditions for borrowers. The next policy-setting meeting is the end of July. The Fed will not issue an update but their statement concerning recent economic conditions and the post-meeting press conference will be closely watched for indications that the Fed’s confidence that inflation is softening is increasing. In August all eyes will be on the annual Jackson Hole Economic Policy Symposium, where Fed policymakers gather with leading economists and others to discuss the state of monetary policy and the global economy. Fed chairs have historically used addresses at this forum to signal big shifts in the Fed’s plans or thinking. Spaving Impacts Spending Trends Anytime consumers spend more money than they intended to save money, they’re “spaving.” A combination of spending and saving or spending more to unlock bigger savings. Financial experts say that spaving is usually just spending unless the consumer is disciplined enough to only buy things they truly need and want. Spaving also ties into FOMO, Fear of Missing Out. Nobody wants to miss out on the bargain of the century. FOMO creates a sense of urgency and has led the popular Flash Sales and other tactics designed to give consumers less time to think. Popular spaving tactics include BOGOs (buy one, get one free) or buy two, get a third item half off, free shipping minimums, limited-time deals, special savings days like Senior Tuesdays, store credit cards, subscriptions and membership programs that encourage loyalty rather than shopping around. All are legal, savvy tactics that have proven effective in getting consumers to keep their tab going. These tactics are more common than ever: between March 2023 to 2024, temporary price reductions increased by 72% and overall promotions by 15%, per CNBC. Spending to save isn't translating into savings. Credit card balances rose 47% between 2021 through 2023, the steepest increase on record. At the same time, the amount of income going to savings has been decreasing, down to 3.6% in April compared to 32% in April 2020. Amazon Has Walmart Thinking Small Amazon’s typical shopper makes 72 purchases a year, usually with a small number of items per purchase, thanks to Amazon’s free shipping for Prime Members policy. Customers spend about $37 per order, according to consumer analytics firm Numerator, for an annual total of $2,662. Walmart's typical shopper shops a little less frequently, spends more per transaction and tends to shop more in-store. But members of Walmart’s Walmart+ program behave more like Amazon Prime members. They spend $98 annually (compared to $129 annually for Prime) for a range of benefits that include some Amazon can’t match, such as steep discounts on gas. Walmart+ members shop more frequently, spend less and order more online and are often opting for delivery. Plastic Packaging on the Way Out? Amazon has replaced 95% of the plastic air pillows used to pad packages in North America with 100% recycled paper filler, a move Amazon says will eliminate nearly 15 billion plastic air pillows every year. Amazon has already switched to recycled paper filler in Australia and Europe. Amazon reports that paper offers “the same, if not better” protection compared with its plastic counterpart, with the added benefit of being recyclable by regular households without having to be sent off to a special recycling facility. The packaging sector is the largest generator of single-use plastic waste in the world. Approximately 36% of all plastics produced are used in packaging. This includes single-use plastic food and beverage containers, 85% of which end up in landfills or as mismanaged waste. The US is by far the largest consumer of plastic products and produces an astonishing 73 million metric tons of plastic waste each year, which is projected to double by 2060, about five times more per person than the global average. Amazon’s switch to recycled paper filler and pledge to eliminate plastic pillows entirely follows years of campaigning by Oceana and other alliance members asking Amazon to reduce their use of plastic packaging. Amazon has already gained some experience using paper packaging in place of plastic air pillows. Last October, Amazon opened an automated fulfillment center in Ohio that used 100% recycled paper to protect products being shipped. Amazon has taken other measures to reduce wasted material, such as shipping items in original packaging, which accounted for 11% of all packages globally in 2022. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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