US Confidence & Real Estate Prices Fall

U.S. Economy: Confidence Falls on Concern Over Jobs
By Timothy R. Homan and Bob Willis - Dec 29, 2010 5:41 AM GMT+0800

Dec. 28 (Bloomberg) -- Home prices dropped more than forecast in October, a sign housing will remain a weak link as the U.S. recovery accelerates into the new year. The S&P/Case-Shiller index of property values fell 0.8 percent from October 2009, the biggest year-over-year decline since December 2009, the group said today in New York. Bloomberg's Jon Erlichman reports. (Source: Bloomberg)
Hugh Johnson Interview

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Dec. 28 (Bloomberg) -- Hugh Johnson, chairman of Hugh Johnson Advisors LLC, talks about the outlook for the U.S. housing market after the S&P/Case-Shiller index showed prices dropped more than forecast in October. The S&P/Case-Shiller index of property values fell 0.8 percent from October 2009, the biggest year-over-year decline since December 2009, the group said today in New York. Johnson speaks with Carol Massar on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Confidence among U.S. consumers unexpectedly fell in December, restrained by concern that jobs will remain scarce in 2011.

The Conference Board’s confidence index unexpectedly fell to 52.5, lower than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the New York-based research group showed today. Another report showed home values dropped more than economists projected.

The loss of confidence is at odds with a report from the University of Michigan that showed sentiment improved to a six- month high in December, and with data showing holiday spending posted the biggest gain in five years. Federal Reserve policy makers this month said “depressed” housing and high unemployment remained constraints on consumer spending, supporting their plans to expand record monetary stimulus.

“We should watch what consumers do and not what they say,” said Omair Sharif, an economist at RBS Securities Inc. in Stamford, Connecticut. “If you looked at the confidence data you wouldn’t have looked for the pace of spending to accelerate as much as it has. Consumers are still very cautious and very nervous about where the labor market is headed.”

Stocks rose, led by rising shares of commodity producers as energy and metal prices climbed. The Standard & Poor’s 500 Index increased 0.1 percent to 1,258.51 at the 4 p.m. close in New York. Treasury securities fell, pushing the yield in the benchmark 10-year note up to 3.49 percent from 3.33 percent late yesterday.

Rising Sales

Retailers’ 2010 holiday sales jumped 5.5 percent for the best performance since 2005, said MasterCard Advisors’ SpendingPulse, which measures retail sales by all payment forms. That compared with a 4.1 percent gain a year earlier. The numbers include Internet sales and exclude automobile purchases.

The median forecast for confidence, based on a survey of 61 economists, projected confidence would increase to 56.3. The Conference Board revised the November figure to 54.3 from a previous estimate of 54.1. Projections ranged from 53 to 60. The index averaged 96.8 during the last economic expansion that ended in December 2007.

Today’s report stands in contrast to preliminary figures from Thomson Reuters/University of Michigan which showed sentiment climbed this month as the share of Americans citing an improvement in current conditions climbed to the highest level since January 2008.

Drop ‘Surprising’

“The fact confidence moved lower is a bit surprising given the other data we have observed for the month,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “Month-to-month changes in confidence are not well correlated with those in spending. Reports from retailers as well as data on spending have been upbeat. We would give those more weight.”

The S&P/Case-Shiller index of property values fell 0.8 percent in October from the same month in 2009, the biggest year-over-year decline since December of last year, the group said today. The decrease exceeded the 0.2 percent drop projected by the median forecast of economists surveyed.

“Despite the fact that housing will remain at pretty low levels through next year, economic growth in general will be fairly robust,” Maki said on Bloomberg Television’s “Market Pulse” with Pimm Fox. Maki said he expected growth in a range of 3 percent to 3.5 percent next year.

Home Values

The home-price gauge fell 1 percent in October from the prior month after adjusting for seasonal variations, matching September’s drop which was larger than previously estimated.

Eighteen of 20 cities showed a decrease in prices in October, led by a 2.1 percent drop in Atlanta, and decreases of 1.8 percent each in Chicago and Minneapolis. Denver and Washington were the only two that posted gains.

Six markets, including Atlanta, Charlotte, Miami, Seattle, Tampa and Portland, Oregon, reached their lowest levels in October since prices started to retreat in 2006.

“The double-dip is almost here,” said David Blitzer, chairman of the index committee at S&P. Sales aren’t “giving any sense of optimism.”

According to the Conference Board, the share of consumers who said jobs are hard to get increased to the highest level since February.

Those expecting more jobs to become available in the next six months reached the lowest level since July, while the proportion who expected their incomes to rise over the next six months also fell.

Jobs Gains

Employers added 951,000 workers to payrolls in the first 11 months of the year, according to figures from the Labor Department. December data are due Jan. 7.

The gains haven’t been large enough to reduce unemployment, which was at 9.8 percent last month after finishing 2009 at 10 percent.

President Barack Obama on Dec. 17 signed into law an $858 billion bill that extends for two years Bush-era tax cuts for all income levels, continues expanded jobless insurance benefits to the long-term unemployed for 13 months and reduces payroll taxes during 2011.

Some Americans are more willing to make big-ticket purchases. Car sales in November rose to a 12.26 million unit pace, the highest since the government’s cash-for-clunkers program in August 2009, industry data showed this month. Demand over the past three months is the strongest in two years.

“We have a high degree of confidence that 2011 is going to be a stronger sales year,” George Pipas, Ford Motor Co.’s sales analyst, said in a Dec. 20 briefing with reporters in Dearborn, Michigan, where the company is based. “We’re a whole lot better off than we were a year ago.”

To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz cwellisz@bloomberg.net