Wednesday, December 29, 2010

US housing and consumer confidence

US housing continues to buck the trend of improving US data - and while that's the case, US consumers will remain cautious and economic growth will remain subdued.

House prices were down a seasonally adjusted 1.0% in October according to the Case-Schiller Index. That gives us an annual rate of -0.8%. That's worse than the market was expecting the average forecast picking an annual decline of 0.2%. The decline was broad-based with 18 of 20 cities recording declines.

It's perhaps not surprising then that consumer confidence fell to 52.5 in December. That's below the bottom end of expectations which had picked, on average, a rise to 56.3 from a (revised) level of 54.3 in November.

The drop in confidence seems at odds with reported strong retail activity over the Christmas period. But the bottom line is this: the US consumer cannot be expected to be a driving force of this recovery until confidence recovers and that requires at least some degree of stability in the housing market. We are not seeing that yet.

Those of you who have read our latest QSO will be aware we have lifted our US GDP forecast for 2011 from 2.5% to 3.0%. We're still comfortable with that - but note the increase was made largely on the back of the announcement of cuts to payroll taxes i.e. new stimulus. The US is still a long way short of a robust self-sustaining recovery. That's especially the case when you consider that next years stimulus needs to become future fiscal consolidation!!