The recent run of optimistic headlines enjoyed by financial markets was interrupted, at least for a day, by two economic reports released Mar. 25. The releases featured a plunge in a closely watched gauge of the mood of the U.S. consumer in March—to a five-year low—and another slide in a key home-price index for January.
Here's Action Economics' rundown of the Mar. 25 reports:
The Conference Board's U.S. consumer confidence index plunged to 64.5 in March, from 76.4 in February (revised from 75), a five-year low. The index is down from 87.3 in January and well below the 90.6 in December.
The March plunge in the headline figure brings the index to its lowest level since March, 2003, though above the 47.3 low point in the prior cycle in February, 1992, and 50.1 prior-cycle low for the series in May, 1980.
And, with a dramatic swing that was characteristic of the current mix of figures weaker for confidence than sales, the "expectations" index plummeted to 47.9. This is a hefty 41 points below the 89.2 present situations measure, and is the weakest figure for this index since December, 1973, when the public was shaken by war in the Middle East and the ensuing OPEC oil embargo.
The year-ahead inflation gauge component of the report jumped to 6.1% from 5.43%.
Today's figures have clearly captured the powerfully pessimistic tone of market discourse since January, which is arguably the dourest dialog on prospects for growth since the early 1980s. But the downturn in this sentiment measure isn't reflected in actual consumer behavior. The pessimism in the March survey data remains in stark contrast to the more gradual moderation in actual consumer spending through the February retail sales report.
We have yet to see if this expanded divergence between expectations and spending will be reconciled over the coming months with some pullback by the consumer. This cycle can thus far largely be characterized by an unusually big gap between public angst about various negative developments in the economy and continued lean savings-rate readings. The divergence reflects an ongoing willingness of the otherwise anxious public to spend a sizable fraction of income on consumption.
Just as public anxiety has risen through the last few years of economic slowing, the savings rate has generally drifted even lower. This divergence has advanced briskly through the first few months of 2008.
S&P/Case-Shiller Home-Price Index
The 20-city composite index fell 2.4%, to 180.65 in January from a revised 185.01 in December (from 184.86 previously). On a year-over-year basis, the index is down 10.71% (another record drop), vs. 9.1% in December. This is a heightened pace of decline relative to the 2.1% drops seen in the previous two months. The big pullback from year-earlier levels in January should be followed by even larger declines over the coming months, as the recent big monthly drops work their way into the belly of the year-over-year calculation.
Prices continue to decline as the big inventory of unsold homes is worked off. Las Vegas, Phoenix, and Los Angeles posted the largest declines. Market observers appeared to be disappointed the January index did not corroborate the February gain in existing home sales (reported Mar. 24) for signs of a bottoming housing market. In addition, with prices typically lagging volume in the real estate market, there is little likelihood of much respite in the price data beyond a moderation in the monthly pace of decline, but with year-over-year drops that should at least reach the 15% area in the second quarter.