Consumer Confidence Drops While Home Sales Rise -- What Gives?
Consumer confidence in early July further eroded in data released today, underscoring the fact that Americans do not see a recovery coming.
This news comes one day after the Commerce Department reported that new home sales jumped 11 percent from May to June.
What do these two seemingly conflicting pieces of data tell us?
That if you want a truer picture of the economy's health, you should trust the consumer confidence figure rather than the new homes sales data.
The median price of a new home dropped 12 percent from June of last year to June of this year. New homes that are being sold are not being bought by you and me; they are being bought by investors because prices are rock-bottom and interest rates are still low (5.55 percent).
Now, every housing market has and needs investors or, as they're pejoratively called, "speculators." But they alone will not make a housing market healthy. To make it healthy, it needs qualified buyers who are confident enough in their continued employment status and the overall quality of the economy to make the biggest investment of their lives.
And that's where we come to consumer confidence.
The index, compiled each month by the Conference Board, consists of two parts: the Present Situation Index -- how consumers feel about the right now -- and the Expectations Index -- how consumers feel about the coming six months.
The Present Situation Index dropped from 25 last month to 23.4 this month. The Expectations Index dropped from 65.5 last month to 62 this month.
"Consumer confidence, which had rebounded strongly in late spring, has faded in the last two months," Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement.
She said that the decline in the Present Situation Index was caused primarily by growing joblessness.
Official national unemployment stands at 9.5 percent and rising, but that figure does not include millions of people who've given up looking for work and others who are not counted in the Labor Department's official number. The truer unemployment rate -- from the Labor Department's own statistics -- now stands at 16.5 percent.
Most forecasters expect the official rate to top at more than 10 percent (but we've been wrong before; the White House said earlier this year that it would peak at 8 percent), which could push the real rate close to 20 percent.
What that means is: The potential home buyers who make a housing market healthy are going to continue to stay on the sidelines.
So don't be surprised to see home sales tick upward while consumer confidence dives. As in most issues, consumers know best.
July 28, 2009; 3:19 PM ET
Categories: The Ticker | Tags: consumer confidence, home sales
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