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Record drop in “home prices” keep US consumer glum

Posted on: April 1, 2009


Reuters – Wednesday, April 1

By Pedro Nicolaci da Costa

NEW YORK – U.S. home prices plunged at a record pace in January while consumer confidence held just above record lows in March, according to data on Tuesday that showed no signs of a bottom for the lengthy recession.

Home prices nationwide have lost around 30 percent of their value from their peak in 2006, according to the S&P/Case Shiller index, with regional variations making for much steeper declines in places like Florida and Nevada. In the year to January alone, prices plunged a record 19 percent.

A depressed housing sector, coupled with dire employment prospects, kept consumer sentiment close to rock bottom. The Conference Board’s index of confidence barely inched up from February’s all-time low, rising to 26.0.

“Job conditions are terrible,” said Brian Bethune, U.S. economist at IHS Global Insight in Waltham, Mass. “There is a general sense of uncertainty because people are peppered with bad news around the world.”

Recent economic reports had shown hints of a pickup in consumer spending and a rebound in durable goods orders. But the data on Tuesday was less reassuring.

The Chicago purchasing managers index, a measure of business activity in the Midwest, fell to 31.4 this month from 34.2 in February, the most severe shrinkage since 1980.

Nor were details of the confidence survey reassuring for those hoping that a turnaround in housing will lead the economy out of its morass.

Only 2 percent of Americans said they intended to buy a home in the next six months, the weakest reading since 1982. Car-buying intentions also fell sharply.

“The mood is still quite gloomy, people are reticent about spending,” said David Resler, chief economist at Nomura Securities.

GLOBAL IMPACT

The troubles were hardly confined to U.S. borders. The Organization for Economic Co-Operation and Development said member economies would contract 4.3 percent this year. That was sharply down from the last forecast of -0.4 percent, made in November.

“The world economy is in the midst of its deepest and most synchronized recession in our lifetime caused by a global financial crisis and deepened by a collapse in world trade,” the OECD said in its interim economic outlook.

Germany suffered its biggest jump in unemployment in March since the outset of the global economic crisis, with the jobless total rising for a fifth straight month.

Canada, meanwhile, was on track to post one of its worst-ever economic quarters, likely pushing the central bank to go beyond interest rate cuts in its efforts to combat the recession.

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