Consumer confidence hit a record low in February, according to a Conference Board survey released on Tuesday, while other data showed house prices in big US cities plunged late last year.
A fall of 18.5 per cent in the year to December in the Case-Shiller house price index was the biggest decline since the measure, published by Standard & Poor’s, started 21 years ago. Prices have now tumbled to levels last seen during the third quarter of 2003.
The downward momentum highlighted some of the risks to a forecast, set out by the Federal Reserve in its economic report to Congress, that the economy would stabilise this year and then rebound.
Ben Bernanke, the Fed chairman, on Tuesday fleshed out this scenario – in which banking system repair and unorthodox Fed financing combine with fiscal stimulus, lower energy prices and the end of an inventory cycle to turn the crisis round. But he said: “Overall the downside risks probably outweigh those to the upside.”
Risks included the “global nature of the slowdown” and the “destructive power of the so-called adverse feedback loop in which weakening economic and financial conditions become mutually reinforcing”.
The drop in house prices revealed on Tuesday followed an 18.2 per cent year-on-year decline in November. According to the December figures, Phoenix, Las Vegas and Minneapolis faced the sharpest declines.
“The mix of a sharply deteriorating labour market, associated weakness in personal income, broader negative wealth effects from other asset classes, a massive overhang of actual and potential supply, and troubled credit availability [is] swamping the record affordability measures,” said Alan Ruskin, strategist at RBS Greenwich Capital. “Cheap just does not do it.”
December’s figure marked the 29th consecutive monthly fall in the homes index. “Most of the nation appears to remain on a downward path,” said David Blitzer, chairman of the index committee at S&P
Since the US housing market peaked in July 2006, the home price index has fallen 26.7 per cent. In the seven years before its peak, the index had jumped 155 per cent. Joshua Shapiro, chief US economist at MFR, predicted that house prices were a half to two-thirds of the way through their decline in this cycle.
The Conference Board confidence index showed on Tuesday that consumers felt worse about conditions in February. Of the 5,000 US households questioned, 51.1 per cent said conditions had worsened, up from 47.9 per cent in January.
“Increasing concerns about business conditions, employment and earnings have further sapped confidence and driven expectations to their lowest level ever,” said Lynn Franco of the Conference Board.
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