Wednesday, July 28, 2010

US Housing and Confidence Review

Similar story to last time, US consumer confidence in July fell worse than expected. The conference board index, designed to measure consumer attitudes on present economic conditions and expectations of future conditions, came in at 50.4 vs consensus for 51.0 and previous of 52.9. The drop was led by a fall in the expectations component with that sub-index falling to 66.6 from 72.7 in June, meanwhile the present situation sub-index fell to 26.1 from 26.8. Overall the index is being held down by a poor labor market, and still tough economic conditions.

Over to the housing front, the May S&P Case-Shiller home price index on the 20-city side showed a 3.9% rise year on year (vs 4.1% in April), and chalked up a 0.5% monthly gain (vs 0.6% in April). The 10-city index showed a 1.2% gain month on month (previous 0.7%), and 5.4% year on year (previous 4.6%). Much of the year on year gains are simply driven by the low base comparator, but there is also the fact that the 3-month moving average aspect captures some of the tax credit effect. As you can see in the chart below, the nascent rebound will surely descend into a double dip of sorts - of course it will not be as severe, but there will not be sustained house price increases until the fundamentals are there to sustain and support it.

So what do these data points collectively point to? The obvious first; things are still not good, the house price slump is miles from being recouped - indeed, the recent rebound we're seeing could well give way to a housing double dip, given there are no real fundamentals to support a sustained price increase. On consumer front, obviously people are affected by the housing market (and of course vice versa!), consumer confidence is being held down by the stagnant housing market, the feeble labor market (with persistently high unemployment), and of course austerity imperative - not only on the government front, but on the personal front. Austerity is the name of the game, because who know what will come next!

Econ Grapher Analytics
Conference Board
Standard & Poors

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