WSJ: Consumer Appetite for Cars, Homes Boosts U.S. Economy

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Historically low interest rates are luring in auto and home buyers with higher incomes than service-sector workers hardest-hit by pandemic




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Consumers have continued spending on big-ticket items such as vehicles and homes during the coronavirus pandemic, helping support the U.S. economy as it battles a surge in cases and renewed business shutdowns.

Historically low interest rates are luring in auto and home buyers, many of whom have higher incomes and firmer job security than low-wage, service-sector workers hardest-hit during the recession, economists and industry experts say.

“Looking at the car sales, looking at the retail activity, looking at the housing data, it has been pointing to a really bigger recovery story,” said James Knightley, an economist at ING Groep NV. “If you’ve got a job and feel pretty secure and you see your equity holdings rise in value, you’re probably still feeling pretty good.”

Mr. Knightley said the big-ticket purchases could weaken if the rise in coronavirus infections and dialed-back state reopenings significantly dampen employment and consumers’ ability to spend. Incomes also could take a hit if the federal government doesn’t continue providing expanded unemployment benefits to the millions of people still out of work because of the crisis, he added.

“I’m just growing a little bit more nervous that after this good run, we could be in for a softer set of numbers,” he said.

Congress is debating whether to extend an extra $600 a week in unemployment benefits provided by the federal stimulus enacted in the spring. The aid is scheduled to expire at the end of July.

Solid spending on durable goods—typically more expensive products designed to last more than three years—differs from previous downturns, when consumers sharply pulled back on these larger purchases while continuing to spend at service-sector businesses, according to findings from a Harvard-based nonprofit research group.

Spending on long-lasting, durable goods accounts for about 7% of gross domestic product. Outlays at service-sector businesses comprise a much larger share of economic output and were the hardest-hit businesses by the pandemic. Growth in services will need to rise much more for the U.S. to achieve a full economic recovery. In May, consumers increased their spending on services by 5.4%. A Commerce Department report due out Thursday on retail spending, which covers spending on autos but not houses, is expected to show a June increase of 5.2%, according to a Wall Street Journal survey of economists.

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