Consumer confidence on rise, but declining home prices could stymie gains
A rebound in equity prices boosted U.S. consumer confidence in October, but further gains could be limited by a renewed slide in house prices, according to Capital Economics. The Conference Board in New York said confidence rose to 50.2 in October from 48.6 in September. Other measures of confidence have recently risen as well, suggesting the rebound in equity prices is more than offsetting higher gasoline prices. Since the recession ended last year, however, confidence has been trapped in a low range of 45 to 65. In a normal recovery, it would now be close to the long-run average of 95, according to Capital Economics. Although the expectations index increased to 67.8 from 65.5, it remains consistent with annual consumption growth of just 1%. As long as the rebound in equity prices is maintained, confidence may edge higher, Capital Economics reported. Progress could be limited, however, if the unemployment rate remains high and house prices remain uncertain. Nationally, unemployment stands at 9.6%, according to September numbers from the Bureau of Labor Statistics. The 0.3% month-to-month decline in seasonally adjusted Case-Shiller house prices in August was the second monthly fall in a row. The index rose 1.7% from a year ago. The alternative Federal Housing Finance Agency measure rose by 0.4% month-to-month. On a year-over-year basis, FHFA is reporting that prices fell 2.4% in August from the year-ago period. "That may suggest the recent fall in prices is temporary, reflecting the plunge in home sales after the tax credit expired," said Paul Dales, U.S. economist for Capital Economics's North America headquarters in Toronto. "But we still fear that continued weak demand and high supply will push prices gradually lower over the next 12 to 18 months. That would hardly boost the mood of consumers." Write to Kerry Curry.