Wednesday, February 23, 2011

US Housing and Consumer Confidence Update

While the US saw further improvement in the Consumer Confidence numbers, the same could not be said about the housing market data. The influential S&P/Case Shiller house price index registered a monthly decline of -0.4% in December 2010, and an annual decline of -2.4%, extending a 6 month string of monthly drops in the 20-city index. The numbers just go to show that even though the rest of the US economy is starting to show more and more signs of life, the housing market still has some ground to cover - indeed while the US consumer continues the deleveraging cycle, it's hard to see credible upside potential for house prices in the near term.

But its not all doom and gloom, as noted the US saw further improvement in the Consumer Confidence numbers (conference board). "The Index now stands at 70.4 (1985=100), up from 64.8 in January. The Present Situation Index improved to 33.4 from 31.1. The Expectations Index increased to 95.1 from 87.3 last month." So, much of the strength came from the jump in the expectations index - so people are starting to feel a little more optimistic which is always a good thing. However the employment situation is still weighing on people's minds - as is clearly seen in the chart below. With unemployment slightly improved, yet still at 9% (or higher depending how you count it!), people are still feeling wary about the present situation.

Looking forward there are a number of indicators that point to a strengthening US economy in the year ahead. Fiscal and monetary policy are way loose, and are likely to stay as such for the near term; the PMI indexes show momentum in the economy, especially the new orders index; a lot of businesses are still sitting on large piles of cash, and so-on. So on the outlook, property prices will likely continue to stagnate, unemployment will likely continue to fall (or at least there will be positive jobs growth), and consumer confidence is likely to gradually improve. But of course there are still plenty of downside risks - both internal and external to the US, so tread carefully...

Econ Grapher Analytics
Conference Board
Standard & Poors
Bureau of Labour Statistics

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