October 14, 2020

For the first time since March, mortgage application activity ticked down slightly for a third straight week. Small business optimism improved in September from August. And the bulk of direct-to-consumer federal pandemic-assistance payments were either saved or used to pay down debt.

Applications for home purchase loans declined for the third straight week

• The Mortgage Bankers Association seasonally adjusted measure of home-purchase mortgage application activity fell 1.6% from last week.
• The index level remains high, but the decline marked the first time it has fallen in three consecutive weeks since March.

A reading on small business optimism improved in September

• The National Federation of Independent Businesses’ Small Business Optimism Index increased 3.8 points from August to September, and now sits just below pre-pandemic levels.
•  27.5% of businesses said they plan to make capital expenditures in the next three-to-six months, the largest share since January.

Federal Reserve: Most assistance checks were either saved or used to pay off debt

• According to the Federal Reserve Bank of New York, just 29% of the direct payments received by many households as part of the CARES Act was used for consumption.
• The findings may help explain why consumer spending hasn’t fallen off since the expiration of other relief programs.

So what? 

While home sales activity remains well above last year’s levels and buyer demand remains firm, it appears that the remarkable, months-long boom in home purchases may be starting to quiet as we head deeper into Autumn. The Mortgage Bankers Association’s Weekly Mortgage Applications Survey showed that the seasonally adjusted measure of applications for home purchase loans fell 1.6% from last week, and has slipped for three consecutive weeks — the first such slide since the pandemic began. Given market conditions, it isn’t terribly surprising that homebuyer activity has slowed near the end of the year. The severe shortage of for-sale homes was going to weigh on buyer sentiment and limit opportunities sooner or later. And the tailwinds of low mortgage rates and delayed sales from the early months of the pandemic getting pushed to later were also bound to fade to some degree. But while purchase loan applications have fallen, activity remains very high by recent historical standards. The index’s late September reading was the highest in almost 12 years.

The severe challenges faced by small businesses amid this pandemic have been well-documented. But while recent studies have highlighted the fact that a growing share of the nation’s small businesses have had to shut their doors since the pandemic began – some of them permanently – sentiment among small businesses owners is improving. The National Federation of Independent Businesses (NFIB)’s Small Business Optimism Index rose 3.8 points in September from August, to a level only slightly below where it was in February prior to the pandemic. Almost 28% of businesses said they expect to make capital expenditures in the next three-to-six months – on par with pre-pandemic levels and up about 10 percentage points from an April low. But while the share of businesses that believe it’s a good time to expand has also risen recently, it remains well below where it was heading into the pandemic. More broadly, it’s important to contextualize this data to understand why it may differ from the conclusions of other, more pessimistic business surveys. While the NFIB survey incorporates input from small businesses across the country, its membership is concentrated in smaller towns and cities. It also contains relatively few responses from service-based businesses such as retail shops or restaurants – sectors that continue to struggle mightily.

As debates over the size and scale of the next potential fiscal relief package continue, a report from the Federal Reserve Bank of New York sheds new light on how the initial stimulus offerings were spent by households across the country. Overall, the study found that through June, the bulk of the one-time $1,200 payments received by many U.S. households across the country were either saved or used to pay down existing debt. Just 29% of the total money sent was spent on consumption (2/3 of which was essential spending, the other third was non-essential), while 36% was saved and 35% used to pay off debt. Similar patterns were also observed with funds included in enhanced unemployment benefits that expired at the end of July. The report’s findings help explain why consumer spending hasn’t collapsed after many fiscal support programs expired in the summer. They also reinforce the idea – one that has been central to recent negotiations in Washington – that a more-targeted approach to the next round of aid might be preferable than another broad-based bill. There are many sectors that continue to struggle mightily, while others have recovered quite strongly in recent months. Additionally, the increased savings rate should help provide a financial cushion for many as the economic recovery continues.

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