Editorial: Economic indicators

It seems to be a common refrain: "We're not going out as much. Everything feels so uncertain these days."

For sure, political divisiveness is a common feature of democratic societies, but when it becomes deeply entrenched as it has been here in Vermont and especially down in Washington, D.C., it can have significant consequences for economic stability.

Unfortunately, uncertainty can hinder investment, slow economic growth, and reduce overall confidence in markets. As we saw during the pandemic five years ago, though, uncertainty can also have a pronounced effect on our downtowns and local economies.

That's not to say we all should not be cautious, but many signs suggest it is actually OK to be cautiously optimistic.

This week, the Federal Reserve kept its benchmark interest rate unchanged and signaled that it still expects to cut rates twice this year, even as it sees inflation staying stubbornly elevated. According to media reports, the Fed said it expects the economy to continue growing — a bit more slowly this year, according to a set of quarterly economic projections also released Wednesday. It forecasts growth falling to just 1.7% in 2025, down from 2.8% last year, and 1.8% in 2026. Policymakers also expect inflation will pick up slightly, to 2.7% by the end of this year from its current level of 2.5%. However, both are above the central bank's 2% target.

Economists noted this week that under the surface there were signs that the central bank could stay on hold for some time. That's likely to keep borrowing costs for mortgages, auto loans and credit cards unchanged in the coming months.

Fed Chair Jerome Powell said, "I think we were getting closer and closer" to price stability, Powell said. "I wouldn't say we were at that. ... I do think with the arrival of the tariff inflation, further progress may be delayed."

Powell acknowledged that many surveys of businesses and consumers have shown rising concern about the economic outlook. Yet he noted that the unemployment rate remains low and the economy is still expanding. "We do understand that sentiment has fallen off pretty sharply, but economic activity has not yet," Powell said. "The economy seems to be healthy."

(Conversely, according to The Associated Press, President Trump posted on social media: "The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy. Do the right thing.")

Consumers are noticing the effects. According to market reports, retailers of high-end and lower-cost goods have warned that consumers are turning more cautious as they expect prices to rise because of tariffs. Retail sales rose modestly last month after a sharp fall in January. Homebuilders and contractors expect that home construction and renovations will get more expensive.

In addition, the average rate on a 30-year mortgage in the U.S. rose slightly for the second week in a row, a modest setback for prospective home shoppers as the spring homebuying season ramps up. The rate rose to 6.67% from 6.65% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.87%. Including this week, the average rate on a 30-year home loan has risen only twice in the past nine weeks, a welcome trend for aspiring homebuyers struggling to afford a home after years of soaring home prices.

(Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose this week, pushing the average rate to 5.83% from 5.8% last week. A year ago, it averaged 6.21%, Freddie Mac said.)

Mortgage rates are influenced by several factors, including bond market investors' expectations for future inflation, global demand for U.S. Treasury's and the Federal Reserve's interest rate policy decisions.

Meanwhile, while sales of previously occupied U.S. homes fell last year to their lowest level in nearly 30 years, they rose 4.2% last month from January, but were down 1.2% from February last year, the National Association of Realtors said Thursday. Predictably, sales of previously occupied U.S. homes rose in February as easing mortgage rates and more properties on the market encouraged home shoppers.

In addition, home prices increased on an annual basis for the 20th consecutive month. The national median sales price rose 3.8% in February from a year earlier to $398,400, an all-time high for the month of February. All told, the U.S. median home sales price is up 47% over the last five years.

More data arrived Thursday to bolster the view that the economy is improving. A report said slightly fewer U.S. workers filed for unemployment benefits last week than economists expected. It's the latest sign of a potentially "low fire, low hire" job market.

On Wall Street, economists said the broad U.S. stock market was likely due for its recent drop, which took it more than 10% below its all-time high in just a few weeks. Some say a correction is needed.

Financial markets are highly sensitive to political uncertainty. Like consumers, investors seek stability, and when governments appear dysfunctional or unpredictable, markets tend to react negatively. Stock markets often experience volatility, especially when there are drastic economic policies proposed.

For everyday Vermonters, it comes down to money in the bank and consumer confidence. Those are two indicators we can all control.

In such unsettled political times, the larger Economy (the one with a capital E) may not be as dire as other considerations. As consumers, we need to continue to support our Main Street businesses and continue to pump our hard-earned dollars into the local economy. It matters today.

Because it could be a lot worse.