Consumer confidence plummeted, raising fears of a deeper recession if the pessimism translates into lower spending.
The Wall Street Journal splashes the news across four columns on page one, while The New York Times stuffs it on C3. It was the lowest reading from the Conference Board’s consumer measure in sixteen years, but consumers’ expectations were even worse—their outlook for the next six months soured to the worst since records began forty-one years ago.
“This is incredibly awful,” the Times quotes an analyst saying. Bloomberg says the drop was far worse than expected.
The survey found that consumers are increasingly pessimistic about their job prospects and chances of getting raises. Barron’s Econoday calls the no-confidence news a “very rare statement of discontent” notable for the fact that “there is an expansion still underway and this is not a time of war, which makes the results difficult to figure.”
Room to drop
Adding to the gloom, home prices fell 15.3 percent in April from a year earlier, the worst showing in twenty years, and prices were off 1.4 percent from March alone, according to the Case-Shiller index , which measures twenty metropolitan areas (The Office of Federal Housing Enterprise Oversight, which has a broader measure but which doesn’t include houses bought with subprime mortgages, says prices declined 4.6 percent from a year ago. The Journal notes that home prices have fallen back to where they were in 2004 and the Times quotes an economist saying they may go further.
“House prices still have room to drop a lot more,” wrote Patrick Newport, an economist at Global Insight, a research firm in Lexington, Mass.
“Given the current level of unsold homes on the market, the number of foreclosures already in or about to enter the pipeline and the run-up in prices over 2000-6, this index is likely to drop much more,” he wrote.
Just 2.2 percent of consumers expect to buy a house in the next six months, the Journal says. That’s the lowest number in twenty-five years.
It’s all pointing to deepening economic decline, especially once the one-time boost from the government tax-rebate cash drop dissipates. The WSJ:
“The final quarter [of 2008] could be a big mess,” said John Lonski, chief economist at Moody’s Investors Service. He noted a host of risks to growth through early next year: rising prices of goods and services, continued pain in the housing market, and a possible slowdown in consumer spending once the impact of federal economic-stimulus checks fades. “That might be when we finally observe back-to-back quarterly declines” in gross domestic product, which typically signify recession, he said.
The Times on C1 says “approval is near” for the housing bill rumbling through Congress. It would refinance mortgages into fixed-rate loans with federal guarantees (something The Washington Post says was proposed by Credit Suisse) and give tax credits for first-time buyers.
Room to rise
Everybody notes that the news makes it less likely—or at least more difficult—for the Federal Reserve to raise interest rates later this year to fight inflation. The question is will the anemic economy put the brakes on price increases or has a stagflationary phenomenon really taken hold?
The Financial Times on page one says the “spectre of inflation returned to haunt the economy” as companies like Dow Chemical moved to pass on soaring energy and commodities prices to their customers. It was the second time in the last month that Dow Chemical said it would raise prices (by 25 percent, on top of last month’s 20 percent hike), news the NYT puts on C1 and the Journal on B3. The NYT:
Dow’s announcement is the latest indication that companies are beginning to pass along the burden of high energy prices to consumers. Until now, those prices had largely been absorbed by company profits because market competition prevented retailers from increasing prices at their stores even as skyrocketing costs continued to strain earnings. But extreme pressure is building in the production chain.
The bum news, along with a negative earnings outlook from economic bellwether UPS, sent stocks down to their lowest level in three months, which was around the time of the Bear Stearns crisis.
Illinois acts where feds don’t
The NYT on C1 and the Journal on A12 report that the state of Illinois is filing a civil suit against Countrywide and its CEO Angelo Mozilo for defrauding borrowers. The Chicago Tribune runs wire copy.