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Consumer confidence lowest 1993 Original Source Link: (May no longer be active)
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Top Financial News
03/25 11:56
U.S. Economy: Confidence Sinks to Lowest Since 1993 (Update1)
By Siobhan Hughes and Carlos Torres
Washington, March 25 (Bloomberg) -- U.S. consumer confidence fell this month to the lowest in almost a decade as the buildup to war in Iraq and higher energy costs threatened to slow the economy.
The Conference Board's confidence index dropped to 62.5 during the month from 64.8 in February, the lowest since October 1993 and the ninth decline in 10 months. In the survey, taken before the start of the war, Americans' outlook for the economy was the bleakest since the first Gulf War in early 1991.
``The data clearly heighten the risk that consumer spending will languish, at least until the war is over,'' said Jade Zelnik, chief economist at RBS Greenwich Capital in Connecticut. Consumer confidence soared by 26 points in the two months after the first Gulf War ended.
Home sales, one main driver of economic growth, remained strong in February. Existing homes sold at an annual pace of 5.84 million units last month, the fourth-best ever, the National Association of Realtors said. A month earlier, sales reached a record 6.1 million annual pace.
``Low mortgage rates are still doing their trick in moving houses, despite the geopolitical uncertainty and concerns about the recovery,'' said Sung Won Sohn, chief economist at Wells Fargo & Co., the largest U.S. originator of mortgages. ``Consumers are betting that housing is their best investment option'' after three years of falling stocks.
The home sales help support the Federal Reserve's contention that the U.S. economy remains on track for growth and may speed up after the war. Mortgage rates are the lowest in four decades, and the Fed last week held the benchmark bank overnight lending rate steady at 1.25 percent, the lowest since 1961.
Consumer Confidence
Economists had expected a reading of 62 in the confidence index after February's previously reported 64, according to the median of 56 forecasts in a Bloomberg News survey.
The Conference Board's report is based on a survey of 5,000 households and reflects responses received through March 18, a day before the U.S. began bombing Baghdad and before last week's 8.4 percent gain in the Dow Jones Industrial Average, the biggest one- week increase in 20 years.
Economists monitor confidence for signs it may hurt the consumer spending that accounts for two-thirds of the economy and has sustained growth. The economy worsened in the buildup to military action. Jobless claims stayed above 400,000 each week for five straight weeks through mid-March, and the average price of gasoline at the pump reached a record $1.77 a gallon in the week that ended March 17.
A gauge of consumer expectations for the next six months fell to 62.5 from 65.7. The index was the lowest since January 1991. The present situation index, which reflects Americans' view of labor and business conditions, declined to 62.4 from 63.5.
Existing Homes
Existing home sales fell 4.3 percent from the record pace of January. Economists had expected sales of existing homes would decline to a 5.8 million annual rate, based on the median of 52 forecasts in a Bloomberg survey.
The Commerce Department may say tomorrow that new-home sales, which are recorded when a contract is signed, rose in February to 925,000 from January's 914,000, based on the median of 52 estimates in a Bloomberg survey.
``Generally strong sales are expected this year assuming the war in Iraq is not prolonged,'' said David Lereah, the Realtor association's chief economist. Still, ``the fragile economy combined with geopolitical concerns, clouds the outlook'' in the next few months.
The supply of existing homes available for sale, another gauge of housing demand, fell to 4.4 months' worth in February from 4.5 months in January, according to today's report.
Home Prices Rise
The median price of an existing home rose 0.9 percent in February to $161,600 from $160,200 the previous month. The price was up 8.2 percent from a year earlier.
In the Midwest, sales rose 4.8 percent to an annual rate of 1.3 million. In the South, sales decreased 8 percent to a pace of 2.3 million. Resales in the Northeast dropped 2.9 percent to a 680,000 annual clip, and in the West they declined 6 percent to a 1.56 million annual rate.
U.S. rates on 30-year fixed mortgages rose last week from a record low of 5.61 percent as war with Iraq moved closer, according to Freddie Mac, the No. 2 buyer of mortgages. The increase in the average mortgage rate to 5.79 percent was the first in nine weeks.
Growth Forecasts
After the Gulf War started in January 1991, the confidence index surged 26 points within two months. March 1991 also marked an end to a recession and the start of the longest economic expansion in U.S. history.
A majority of economists predict a similar rebound in consumer confidence this time. Analysts expect the economy to speed up in the second half, based on forecasts that the war will be over by June at the latest. A growth rate of 3.5 percent is likely for the third quarter and 3.7 percent for the fourth quarter, based on the median of 71 forecasts in a Bloomberg News survey. A 2 percent rate is forecast for the current quarter.
Consumers found that jobs were hard to come by as uncertainty about the timing and duration of war kept companies from hiring, according to today's Conference Board report. The percentage of consumers who saw jobs as hard to get rose to 32.3 percent in March, the highest since May 1994, from 30 percent.
The share seeing jobs as plentiful rose to 11.6 percent this month from 11.4 percent. The February percentage was the lowest since January 1994.
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