Consumer confidence dims as home prices climb
July 27, 2010 1:47 PM ET
NEW YORK (Reuters) – Job worries drove July U.S. consumer confidence to its lowest since February, with one in six people expecting lower income in the next six months, underscoring the precarious state of economic recovery.
Home prices rose in May but display no signs of a sustained rebound as long as unemployment flirts with 10 percent and a record stockpile of foreclosed houses looms over the market, a separate report showed on Tuesday.
Single-family house prices remain 29.1 percent below peaks four years ago, according to a Standard & Poor’s/Case-Shiller index.
The deepest housing crash since the Great Depression dragged the U.S. economy into recession, and is doing little to stimulate broader growth as many economists fret about a possible double-dip recession.
The Conference Board, a New York-based business and economics research group, reported that consumer attitudes worsened this month as did expectations about jobs being hard to get.
“Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves,” said Lynn Franco, Director of The Conference Board Consumer Research Center.
The group’s index of consumer attitudes fell to 50.4 in July from an upwardly revised 54.3 in June, below the median forecast of 51 in a Reuters poll.
The “jobs hard to get” reading, meanwhile, rose to 45.8 percent from 43.5 percent.
The tepid consumer data tempered stock market gains. U.S. Treasuries fell in the face of new supply.
“There have been quite a few headwinds — the fiscal stimulus is fading, the European situation certainly did have an impact on consumer confidence and inventories are being brought more into line,” said David Sloan, economist at 4Cast Ltd in New York. “But clearly the big problem for consumers is jobs.”
U.S. unemployment stood at 9.5 percent in June, the lowest in nearly a year, but reflected people leaving the workforce rather than a trend toward greater hiring.
New jobless benefits claims, to be reported by the Labor Department on Thursday, are seen are seen dipping to 459,000 in the week ended July 24 from a surprisingly high 464,000 the prior week
“Without consumers on board, the economic recovery is looking dangerously vulnerable,” Paul Dales, U.S. economist at Capital Economics in Toronto, wrote in a report. “Falling consumer confidence and the growing likelihood of a double-dip in house prices have put a further dent in the already deteriorating outlook for consumption growth.”
Consumer sentiment fell to a nearly one-year low in July on renewed fears about economic stability, according to the Thomson Reuters/University of Michigan’s Surveys of Consumers earlier this month. The final data will be reported on Friday.[nN16126985]
U.S. single-family home prices rose more than expected in May, but still reflected robust spring sales spurred by now-expired homebuyer tax credits, the S&P/Case-Shiller home price indexes showed.
May is a strong seasonal period for home sales, and buyers who rushed to sign contracts by the April 30 deadline for up to $8,000 in tax credits have until September 30 to close loans.
Seven of the 20 largest metro areas still reported lower prices than a year ago and most economists predict further single-digit declines before any sustained upturn. A record inventory of foreclosed properties further threatens prices.
“For me, a double-dip is another recession before we’ve healed from this recession … The probability of that kind of double-dip is more than 50 percent,” Robert Shiller, professor of economics at Yale University and co-developer of the price index told Reuters Insider.
The 20-city composite price index in May rose 0.5 percent, seasonally adjusted, after an upwardly revised 0.6 percent April gain, topping the 0.2 percent rise seen in a Reuters poll. The index was 4.6 percent above last May, S&P said.
Prices jumped 1.3 percent on an unadjusted basis after a 0.9 percent April gain and falls in the six prior months.
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“While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still does not indicate that the housing market is in any form of sustained recovery,” David M. Blitzer, chairman of the Index Committee at Standard & Poor’s, said in a statement.
Sales of new homes in June, reported on Monday, surged 23.6 percent but remained at the second-lowest level since the Commerce Department started keeping records in 1963.
The government is expected to report on Friday that gross domestic product growth slowed to a 2.5 percent annual rate in the second quarter from a 2.7 percent pace in the first.