Surprise drop in US consumer confidence

CONFIDENCE AMONG US consumers dropped in June after two months of building optimism, surprising economists and dealing a blow to stock markets.

The Confidence Board industry group said its index of consumer confidence dropped to 49.3 in June from a revised 54.8 in May.

Economists had expected a figure of about 55 but consumers are feeling worse about the state of the economy and about where they expect it to be in six months’ time.

Confidence built over the spring amid talk of “green shoots” in the economy and a rising stock market, but now people say business conditions are worse and jobs are becoming harder to find.

Just 17.4 per cent of consumers surveyed said they expected more jobs to appear in the months ahead, down from 19.3 per cent in May.

The pace of layoffs has lessened recently but the unemployment rate has leapt to 9.4 per cent, creating a swelling pool of people searching for a shrinking number of jobs.

“For consumers I think the light bulb finally went on and they said, ‘you know, less bad is probably not good enough, less bad doesn’t pay the bills’,” said Mark Vitner, senior economist at Wachovia. “It may be that consumers need to see a tangible improvement in their own conditions before they buy into the idea the economy is improving.”

But there was some positive news yesterday as separate figures showed the pace of the US housing downturn abated in April.

House prices in 20 metropolitan areas fell 0.6 per cent month-on-month in April, according to the SP Case-Shiller home-price index, following a 2.2 per cent decline a month earlier. Prices were still 18.1 per cent lower than a year ago, in a sign of how savaged the housing market has been, but economists were expecting a worse figure of 18.6 per cent.

“While one month’s data cannot determine if a turnround has begun, it seems that some stabilisation may be appearing,” said David Blitzer, chairman of the SP index committee. But he warned that spring and summer were traditionally stronger for house prices.

The Case-Shiller index has fallen by almost a third since the peak of the market in mid-2006, and many believe prices must stop falling before a broader economic recovery can begin. – (Copyright The Financial Times Limited 2009)