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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

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.

-- Frank Ahrens
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By Frank Ahrens  |  July 28, 2009; 3:19 PM ET
Categories:  The Ticker  | Tags: consumer confidence, home sales  
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Next: House Panel Approves Limits On Executive Pay

Comments

The jobless rate is not even close to assessing the real earnings hits to the tens of thousands of people still on the payrolls.

Furloughs amounting to 10-15% wage cuts are rampant throughout California....every State employee is affected, including universities, Counties, Cities, etc. Management and labor. Private sector is doing likewise where they can. And it's happening in many States, especially those with big real estate downturns.

I don't believe this bandaid approach will work for long.

The jobless figures are an incomplete and inaccurate picture of the pull back in real wages.

Posted by: bandcyuk | July 28, 2009 4:33 PM | Report abuse

The news must be more Luau love for Obama, unless Mexico and Canada are lending money.

Tent and RV cities are packed, outside of cities where rows and rows of Obamaland houses owned by ObamaBank sit empty.

Obama stimulous lies must have been to pay back his "largest war chest in history " loans, it wasn't for the people.

Favored item in these new towns voring in leadership and struggling every day with sewage and clean water is an Obamafaced doormat with NPD sociopath written on it.
They are piled with shoes and mud.

Posted by: dottydo | July 28, 2009 5:31 PM | Report abuse

To: dottydo: Could you please put your comments in English? I can't tell what you want.

"houses owned by ObamaBank sit empty"? Are you advocating a federal take-over of the banks, so that the government can sell foreclosed houses cheaply? A so-called "socialist" program? If not that, what?

"Obama stimulous [sic] lies must have been to pay back his 'largest war chest in history' loans, it wasn't for the people." Are you suggesting the $700 billion stimulus is being stolen to pay the Obama campaign expense? That entire expense was much less than one percent of the size of the stimulus, and I think Obama ended up with a surplus, not a debt.

I rather think you are writing nonsense, but you write so badly, I can't tell.

Posted by: chassimmons | July 28, 2009 7:50 PM | Report abuse

LA LA Post
Kay, I'm thinking of moving the family out west. Send the lawyers. Pick a nice place in Beverly Hills. Anything you want. I'm looking for a beach house. The kids need to surf and the waves keep coming in and hitting shore things. I guess some things are more shore than other things. With Don retiring, he can use walks on the beach to reflect.

Posted by: Dermitt | July 29, 2009 9:10 AM | Report abuse

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