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US consumer confidence at 5-year low

By James Politi in Washington DC
March 26, 2008 10:14 IST
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US consumer confidence tumbled to a five-year low in March, disappointing economists and raising fears that the American economy could be heading into a deep recession.

The Conference Board's confidence index fell from 76.4 in February 64.5 this month, compared with economists' expectations of a much lighter drop to about 74, as US consumers fretted over the deteriorating labour market and higher food and energy prices.

"Consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon," said Lynn Franco of the Conference Board. Except for a brief period in 2003 when the Iraq war began, the index is at its lowest level since the early 1990s.

The sharp fall in consumer confidence was a reflection of a more pessimistic assessment of both present and future conditions, according to the survey. Consumer expecting fewer jobs in the future increased, while consumer expecting more jobs declined, highlighting concerns about the direction of the labour market.

"It isn't hard to see why consumers are this gloomy when they are faced with collapsing house prices, deteriorating conditions in the labour market, surging gasoline prices and turmoil in the financial markets," said analysts at Capital Economics in London.

The collapse in US consumer confidence came as the Case-Shiller Index of US home prices showed a sharp decline in January. Home prices in 20 large cities fell 10.7 per cent in January compared with the same period last year, a drop that was only slightly worse than expected but represented a steeper decline than the 9.1 per cent fall in December.

"The decline in nationwide January home prices at an accelerated rate is a troubling reminder that conditions in the housing market continued to deteriorate in early 2008," said Brian Bethune of Global Insight.

"Clearly the housing market will exert a severe drag on real output in the first half of 2008, and tighter credit conditions overall are expected to have a dampening effect on other big ticket purchases, such as automobiles and household appliances," Mr Bethune said.

The figures on home prices could dampen hopes that the US housing market may be close to a bottom, which were raised on Monday when data showed that sales of previously owned homes rose for the first time in seven months in February. These numbers seemed to suggest that buyers were beginning to move back into the housing market to search for bargains.

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James Politi in Washington DC
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