Confidence, home prices sliding
US consumer index falls to a 16-year low
WASHINGTON - Confidence among Americans dropped to the lowest level in 16 years and house prices fell the most on record, raising the risk that consumers will cut back on purchases after spending their tax rebates.
The Conference Board's confidence index fell to 50.4 in June, lower than forecast, from 58.1 in May. Home prices in 20 cities dropped 15.3 percent in April from a year earlier, according to S&P/Case-Shiller, the most since the group began collecting data.
Consumers, whose spending accounts for more than two-thirds of gross domestic product, are being hurt by the housing slump, rising unemployment, and higher food and fuel bills.
"We've seen this dive in confidence in the last two months at the same time these stimulus checks" have been mailed, Chris Low, chief economist at FTN Financial in New York, said. "It tells me if we see this pop in spending, it's not going to last."
The confidence measure reached the lowest level since February 1992, when the economy was in the midst of the so-called jobless recovery following the 1990-1991 contraction.
The share of consumers who said jobs are plentiful fell to 14.1 percent from 16.1 percent last month. Those saying jobs are hard to get increased to 30.5 percent from 28.3 percent. Buying plans over the next six months for automobiles, houses, appliances, and vacations all declined.
Recent economic data suggest "we are on the brink" of a recession, former Federal Reserve chairman Alan Greenspan said yesterday. The next year will be "a very sluggish period" with a "highly volatile oil market," he said.
Mortgage defaults and foreclosures are adding to the glut of properties on the market, while stricter loan rules are making it more difficult for prospective buyers to get financing. A separate report from the Office of Federal Housing Enterprise Oversight showed prices fell 4.6 percent in April from a year earlier.
While the Fed has pledged to combat any increase in inflation expectations, economists predict the central bank will keep its benchmark interest rate at 2 percent today. They will also be reluctant to signal an imminent increase in borrowing costs.
"People are really, really ill at ease right now," New Jersey Governor Jon Corzine said in response to the consumer confidence report. Corzine, a Democrat, is former chairman of the investment bank Goldman, Sachs & Co.
Corzine advocates spending more on infrastructure, in New Jersey and nationally, as a way to boost the economy.
