Consumers Shift Spending Habits, Red-Hot Housing, Possible Metals Shortage
In today’s Steady Investor, we dive into current news and key factors that we believe are currently impacting the market, such as:
- American consumers shift spending habits
- Status of the red-hot housing market
- Possible commodity shortages
American Consumers are Shifting Spending Habits – Remember the time last year when U.S. households only seemed to spend money on groceries, toilet paper, personal computers, tech for home offices, Pelotons, and home improvement projects? Well, a decisive shift is on, in what the Wall Street Journal dubbed “The Great American Cleanup.” Instead of buying goods suitable for life at home, American consumers are spending money on goods and services needed for re-entry into civilization. Deodorant, teeth whitener, haircuts, swimsuits, perfumes, grooming products, and travel gear are among the categories seeing a surge in demand. With roughly 50% of American adults vaccinated, there is a growing desire to ‘get back out there,’ which means cleaning up and spending money in close-contact services. Think restaurants, live music events, bars, and other forms of entertainment. This shift in spending is great news overall, but it also leaves many economists and business owners with a new question: is consumer spending in new categories like travel, entertainment, and personal care going to come at the cost of spending in other areas?1
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Checking in On the Red-Hot Housing Market – In April, the median price of a new home was $372,400, which marks a 20.1% jump from the previous year and also marks the biggest annual gain since 1988. Existing home sales have seen similar patterns, with the market lacking supply relative to demand. As you can see from the S&P/Case-Shiller National Home Price Index, prices of all homes have risen at a rapid clip over the last year.3
Strong home buying demand could be rooted in multiple causes – ultralow interest rates, millennials entering the market as first-time homebuyers, and wealth gains coming from the stock market and other investments. Homebuilders have not been able to keep up, and lack of inventory at this stage in the cycle may be causing home sales to ease. By some economists’ measures, it could take years to shrink the nationwide deficit of houses, which is further complicated by rising costs of building materials like lumber.
Is There a Coming Commodity Shortage? Commodity prices have also been rising over the last year, with the prices of precious metals like cobalt, copper, nickel, and lithium seeing strong gains over the last year. But even with higher prices and better profits, miners have been balking at investing big dollars in new projects. The rationale behind investment hesitancy is that mining company investors are pushing for higher dividends instead of new investments, considering many companies burned through cash during the last bull market in commodities. In other words, shareholders are asking for a little profit-taking in the current environment, versus new investment. This has led to concern that the global economy could experience a shortage of metals later in this expansion.5
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2 Zacks Investment Management reserves the right to amend the terms or rescind the free How the Looking to Retire in 2021? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
3 Wall Street Journal. May 25, 2021. https://www.wsj.com/articles/u-s-home-price-growth-accelerates-in-march-11621947742
4 Fred Economic Data. May 25, 2021. https://fred.stlouisfed.org/series/CSUSHPISA#0
5 Wall Street Journal. May 25, 2021. https://www.wsj.com/articles/commodity-prices-have-soared-but-miners-arent-investing-11621940401
6 Zacks Investment Management reserves the right to amend the terms or rescind the free How the Looking to Retire in 2021? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
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