Confidence Lowest

October 29, 2008
Rattled by Housing Slide, Consumers See Worse to Come
By MICHAEL M. GRYNBAUM

Falling home prices and steep declines in the stock market are taking a sharp toll on Americans’ faith in the economy, a fact driven home by a pessimistic reading on consumer confidence released on Tuesday.

A widely watched survey by the private Conference Board, which dates back decades, plunged to its lowest point on record in October as Americans complained about fewer jobs and smaller incomes and ratcheted back plans for major purchases like cars and appliances.

Americans also say they believe the economy will worsen before it improves — a sign of deep pessimism that reflects a year of painful declines in stocks, jobs and home values. Some have lost thousands in retirement money. Others are fearful of losing their source of income, and a record number of outstanding mortgages are in foreclosure.

“A consumer-led recession is upon us, and it promises to be a serious one,” Joshua Shapiro, chief domestic economist at MFR, a research firm, wrote Tuesday in a note.

Despite the report, Wall Street was sharply higher as trading came to a close Tuesday, with both the Dow Jones industrial average and the Standard & Poor’s 500-stock index almost 8 percent higher.

The survey’s confidence index fell to 38 in October, down from 61.4 in September, on a scale where a reading of 100 represents the consumer outlook on the economy in 1985. Expectations for the future also reached a record low. The survey dates to 1967.

“Looking ahead, consumers are extremely pessimistic, and a significantly larger proportion than last month foresees business and labor market conditions worsening,” Lynn Franco, director of the Conference Board’s consumer research center, said in a statement.

Nearly half of the 5,000 surveyed households said they expected the job market to deteriorate further, and many appeared worried about their ability to make purchases over the next few months. The report did not bode well for retailers who are anxiously eying the December shopping season.

The Commerce Department said last week that retail sales sank 1.2 percent in September, and many large retailers have reported double-digit declines.

“These moves are likely to have at least partially been driven by the worrying news flow on the U.S. financial system, but it appears to be the labor market that is the source of the bulk of the worries,” James Knightley, an economist at ING Bank, wrote in a research note of the consumer confidence numbers.

The American economy lost 159,000 jobs in September, the worst month of retrenchment in five years. Over the nine months ending in September, employment has diminished for nine consecutive months, eliminating 760,000 jobs, the Labor Department reported earlier this month.

Economists said they expected sentiment to improve as cheaper gas prices eased the strains on consumers’ pocketbooks. But housing troubles will probably weigh on Americans for many more months, eroding home equity lines and possibly creating another wave of foreclosures.

The beleaguered housing market found little relief in August as home prices across the country dropped at yet another record pace, according to a closely watched survey released Tuesday.

Home prices in 20 cities fell 16.6 percent in August compared with a year ago, the biggest annual drop in the history of the Case-Shiller Home Price Index, released by Standard & Poor’s, the ratings agency.

Every city included in the survey experienced a drop in prices from a year earlier, a trend that has so far lasted five months. Phoenix and Las Vegas were hit hardest, with prices down 31 percent in both cities. Prices declined more than 25 percent in Los Angeles, Miami, San Diego and San Francisco.

Prices dropped a percentage point between August and July, an indication that the pace of the decline may be slowing slightly. Only two cities — Cleveland and Boston — had price increases for the month, compared with six in July. Prices were unchanged in Chicago and Denver.

“The downturn in residential real estate prices continued, with very few bright spots in the data,” David M. Blitzer, who oversees the survey, said in a statement.

A 10-city index fell 17.7 percent year-over-year.

The housing slump has continued unabated for months, and its consequences can be felt throughout the nation’s economy. It has led to the erosion of jobs, pain in a number of housing-related industries, and, in part, the credit crisis that caused the collapse of several Wall Street banks. Whirlpool, the appliance maker, announced more layoffs and additional plants closings on Tuesday, citing the housing slowdown. Household home equity lines have also deteriorated.

Lower prices, however, are in some sense the key to recovery, economists said, although prices may need to fall further to lure buyers back into a market sagging with unsold inventory.

Sales also appeared to pick up slightly in September, according to reports from the Commerce Department and the private National Association of Realtors. Sales of both previously owned and newly reconstructed homes rose. But inventories remained elevated.

(=> nytimes.com)

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