“In February, consumer confidence registered the largest monthly decline since August 2021, This is the third consecutive month on month decline, bringing the Index to the bottom of the range that has prevailed since 2022.” Stephanie Guichard, Conference Board Senior Economist
The last Mortgage Corner column asked what 2025 economic growth will depend on, and whether consumers will keep spending in the New Year. If they can’t continue their spending ways, growth will stall in this New Year. And as has been widely reported, the latest consumer confidence surveys show a weakening in their resolve.
It’s beginning to worry the financial markets and that affects our overall wealth and health, which is why I cover consumer spending.
The Conference Board’s consumer confidence survey caused some of the worry. Bloomberg News headlined that fact with the title, “Recession fear is back” recently:
“Perceptions of present and future financial situations worsened and the share of respondents expecting a recession in the next year rose to a nine-month high.
That pessimism has Americans cutting back their spending: According to a new study from Wells Fargo, more than half of consumers are delaying major life plans due to uncertainty over the economy and the consequences of Trump’s tariff threats. Of those, about a third said they were putting off buying a home while one in six have postponed education plans—and one in eight have pushed back retirement.” —Jordan Parker Erb
Such fear was the reason the DOW fell almost 800 points last Friday, although the markets might have a very tentative recovery this week. But there’s another elephant in the room besides their declining confidence that is causing more worries—the ongoing budget debate.
Republicans want badly to extend Trump’s tax cuts from his first term, which could add another $4 trillion to the federal debt, per the latest estimates, which is threatening the U.S. Treasury’s bond rating and causing investors to become leery about investing in US Treasury securities. They will demand higher rates to compensate for the added risk.
There is also another elephant—inflation fears. No one can agree on where public expectations are. Republicans want to believe Trump can conquer inflation, as he promised, but Democrats don’t, to no one’s surprise. Inflation has been rising, which will keep interest rates higher than they should be at this time in the business cycle. It is in its late stage because of a weakening job market. Just 143,000 jobs were created in January, though the unemployment rate dropped to 4.0 percent from 4.1 percent.
The housing market is also a good indicator of future economic health, and it is mired in a mini-recession because 30-year fixed mortgage rates are still close to 7 percent (6.8% at present). Existing home sales are down to a 4.08 million annual rate. New-home sales are doing better because builders are offering to buy down their mortgage rates, although tend to be more expensive, hence shutting out most first-time homebuyers.
"Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve," said NAR Chief Economist Lawrence Yun. "When combined with elevated home prices, housing affordability remains a major challenge."
Affordability in all things will remain the question this year for consumers, unless prices show some sign of easing, but that will depend on lower interest rates, which will depend on lower inflation.
Am I sounding too pessimistic? It’s because we don’t know what the Trump administration will do. Markets don’t like confusion or chaos, and it won’t help to reduce the budget deficit, or inflation.
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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