The downbeat consumer confidence report, which fell to its lowest since the aftermath of Hurricane Katrina, was supplemented by figures that showed that house prices in 10 US metropolitan areas were 5 per cent lower in August compared with the year before, the biggest drop since the dark days of the last housing bust in 1991.
Further weakening in business conditions has, yet again, tempered consumers’ assessment of current-day conditions and may very well be a prelude to lacklustre job growth in the months ahead,” said Lynn Franco, director of the Conference Board Consumer Research Center.
The Conference Board’s index, which has been declining since August, fell to a reading of 95.6 in October, down from 99.5 last month and worse than economists had expected.
Households surveyed for the index expected fewer jobs, despite growing employment according to last month’s employment report, and worse business conditions in the months ahead.
The housing market recession combined with the associated turmoil in the financial markets and higher oil prices are all likely to pressure consumer confidence in the coming months,” said economists at Wachovia.
The closely-watched Case-Shiller index showed that house prices fell compared with last year in 15 out of 20 cities surveyed.
The fall in home prices is showing no real signs of a slowdown or turnround,” said Robert Shiller, chief economist at MacroMarkets. There is really no positive news in today’s report.”
Homebuilders have been slashing prices in an effort to clear inventory two years into the housing downturn, while tightening standards for mortgages have made home loans more difficult to get and deterred buyers.
A huge overhang of homes for sale continues to depress prices” said Michael Meyer, an economist at Lehman Brothers.
The Fed is widely expected to cut rates by a quarter-point to 4.5 per cent when its two-day policy meeting finishes on Wednesday. The Fed slashed rates by 50 basis points in its last meeting in an effort to ease the fall-out from the summer financial market turmoil by encouraging easier credit.
While third-quarter growth appears strong, fears are rising that the deepening housing slump will dampen consumer spending and that tight credit conditions are not abating.