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NEW YORK: Americans shook off some of their concerns about the economy as consumer sentiment rebounded this month from a 2½-year low, but a fall in house prices in September underscored the weak foundations of the recovery.
The sentiment data released on Nov 29 was a positive sign heading into the holiday shopping season. Separate figures showed US retailers reported strong sales last week. The Conference Board said its index of consumer attitudes jumped to 56 from 40.9 in October, for the highest level since July and handily topping economists’ forecasts for 44. Still, the confidence index remains historically low and is off from a peak of 72 seen in February.
Consumer confidence has taken a hit since the summer amid political gridlock, worries of another US recession and a growing eurozone debt crisis. The cutoff date for the survey was Nov 15, before the failure of a congressional committee charged with reaching a deal on US$1.2 trillion (RM3.77 trillion) in deficit reductions.
“This is a huge rise in consumer confidence. It gets us back to second quarter levels and further underscores the dramatic move that we’ve seen in consumer spending,” said Lindsey Piegza, economist at FTN Financial in New York. “Generally when the consumer becomes happier, more confident, they’re more likely to dip their toes back into spending.”
Echoing that, retailers reported a strong start to the holiday season. The International Council of Shopping Centres said sales rose 1.7% last week, the biggest gain since June, while the Johnson Redbook Index of large merchandise retailers showed sales rose 5.4% last week from a year earlier.
With consumer spending accounting for about 70% of the US economy, the recovery will be hard pressed to make significant gains without consumers’ help. US stocks added to gains immediately following the sentiment data, while Treasuries extended losses and the euro rose against the dollar.
But earlier data showed the beleaguered housing market is still struggling to get back on its feet. The S&P/Case Shiller composite index of 20 metropolitan areas fell 0.6% from August on a seasonally adjusted basis, falling short of economists’ forecasts for no change.
Prices in August were also revised to show a decline of 0.3% after originally being reported as unchanged. The index had levelled off in recent months and analysts are hoping the market is at least stabilising. Even so, prices are expected to stay weak for some time to come, given the excess amount of homes and few buyers.
“Ultimately, we continue to expect home prices to remain under pressure. This report is generally consistent with that idea. The supply-demand imbalance that exists in the housing market will continue,” said Tom Porcelli, chief US economist at RBC Capital Markets in New York.
For 3Q, prices were down 1.2% from 2Q on a seasonally adjusted basis and were down 3.9% from 3Q a year ago. That was weaker than 2Q, which had seen a gain of 0.2% compared to the first three months of the year.
Compared to a year earlier, prices in the 20 cities were down 3.6% in September after a year-on-year decline of 3.8% the month before. Separate data provided a silver lining as the number of homeowners who are “underwater” on their mortgages — owing more than their home is worth — decreased modestly in 3Q, though levels remained high.
Data analysis company CoreLogic reported the number of properties with so-called negative equity was 10.7 million, or 22.1% of all residential properties with a mortgage. That is a slight decrease from 10.9 million, or 22.5%, in 2Q.
As the housing market struggles to recover, the large number of underwater homeowners has prompted concerns of more foreclosures to come if borrowers become unable to keep up with their payments or decide to walk away. The US government recently expanded a refinancing programme in a move that could reach up to one million borrowers.
This article appeared on the Property page, The Edge Financial Daily, December 2, 2011.
