Conference Board Consumer Confidence Rebounds in April

The US consumer’s mood brightened a bit in April, increasing from 63.8 to 65.4. This index dipped sharply in March when it fell from 72.0 down to 63.4. , as consumers were buttressed by higher gas prices as well as uncertainty emanating from Japan’s earthquake, and worries about Euro-zone sovereign debt.

Still, with a labor market which has shown two strong months of job growth, and an easing, or at least topping off of oil prices in April, consumers showed more optimism in the short-term outlook, reversing some of the losses during March. Inflation expectations also retreated after spiking in March. Consumer’s assessment of current conditions improved for the 7th straight month.

The news helps the US economy, if it holds true that more confident consumers spend more. The correlation between consumer sentiment and consumer behavior can be an imperfect, but with the US economy depending on consumer spending for about 2/3rds of the economy, today’s news helps support the case that US consumer spending should continue to pace modest gains for the April period.

Richmond Fed Manufacturing Index Shows Pace of Activity Cooling

Today’s release disappointed forecasts, coming in at 10 opposed to the forecast 20, similar to what we saw in the Philly Fed manufacturng index. While activity continues to gain, we are seeing several pieces of manufacturing data pointing to a slowdown in growth. The manufacturing sector has been important as its been at the forefront of the currency recovery. It’s not time to panic, just means we have to monitor incoming data on manufacturing for more signs of potential weakness.

From the Release: “Manufacturing activity in the central Atlantic region expanded in April for the seventh straight month but at a more temperate pace than a month ago, according to the Richmond Fed’s latest survey. All broad indicators — including shipments, new orders and employment — continued to grow but at a rate below March’s pace. Other indicators were mixed. Fifth District contacts reported that capacity utilization continued to grow more slowly, while backlogs turned slightly negative. Vendor delivery times edged higher and raw materials inventories grew at a somewhat higher rate.”

S&P/CS House Price Index Extends Decline

The US housing market saw another disappointing showing from housing prices. the S&P/Case Shiller 20-city house price index was 3.3% lower in February 2011 than it was in 2010. That is the 7th straight month of declines.

The 10-City and 20-City Composites recorded annual returns of -2.6% and -3.3%, respectively. On a month-over-month basis, the 10- and 20-City Composites were both down 1.1% in February versus January

While existing and new home sales rebounded in March, and we had some better housing starts as well, weaker prices will continue to put pressure on the overall housing market.

If home buyers anticipate lower prices in the future, they will hold off on buying a new home now in hopes of getting a similar home at a cheaper value in the future. That inhibits activity in the sector.

Lower housing prices also lower household worth and it makes it more likely that a mortgage will go “underwater” in that the house is worth less than the mortgage, and there is an incentive for some to foreclose the property.

From the Release: ““There is very little, if any, good news about housing. Prices continue to weaken, trends in sales and construction are disappointing.” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Ten of the 11 MSAs that recorded index lows in  January fell further in February.

“Recent data on existing-home sales, housing starts, foreclosure activity and employment confirm that we are still in a slow recovery. Existing home sales and housing starts rose in March, but remain close to recent lows. Foreclosure activity showed decreases in mortgage delinquencies in the fourth quarter of 2010, but are still close to historic highs. The nation and 34 states registered a decline in their unemployment rates for March.”

We know housing prices are depressed, and that point was brought home rather sharply in today’s report as monthly prices showed a big 1.1% decline between February and January. Falling housing prices will plague the housing recovery.

Here’s a good chart from the S&P report showing the overall index itself (not in annual change):

As we can see the S&P 20-city and 10-city indexes fell from a peak around 225 in 2006 to a low around 151 in early 2009. That returned the indexes back to their levels in summer of 2003. After a period in which prices managed to move into positive territory (’09-’10), we have now seen several months in a row in which we have a consistent move downward in housing prices. Again, falling housing prices will remain a pressure point on the US housing market, which is a negative drag on overall GDP.

In fact, the weak housing sector will be a contributing factor to the overall poor 1st quarter GDP results expected for the US on Thursday.

Summary:

While the consumer confidence figure was encouraging, and helps to reinforce the idea that an improving labor market can help to sustain the type of consumer spending we have seen over the last 5 months. Therefore, it may have had the biggest impact in today’s session as equities were higher and it reinforced risk appetite.

From Marketwatch: “U.S. stocks closed solidly higher Tuesday, rebounding from losses in Monday’s low-volume session, as investor applauded a round of earnings and forecasts from industrial bellwethers including 3M Co. (MMM +0.35%) , Ford Motor Co. F (-0.19%) , UPS (UPS -0.23%) and others. The Dow Jones Industrial Average (DJIA +0.93%) added 115.49 points, or 0.9%, to 12,595.37, lifting the blue-chip average back to a June 2008 high. The S&P 500 (SPX +0.90%) gained 11.99 points, or 0.9%, to 1,347.24, with industrials leading gains in all 10 subsectors. The Nasdaq Composite (COMP +0.77%) added 21.66 points, or 0.8%, to 2,857.54.”

The housing prices data is a worrisome reminder that the US housing market is still ailing, but there’s not much to be done about it at this point. That has been priced into the market. The Richmond Fed index (like the Philly Fed index) shows that US manufacturing sector, while still growing, may be slowing down.

For now, equities were pushed higher by a round of earnings and forecasts, and tomorrow the attention will focus squarely on the Federal Reserve and Fed Chairman Bernanke and later this week by the US GDP release.

Nick Nasad
Chief Market Analyst
FXTimes

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