Things are supposed to be getting better in the US. May saw a 1 per cent rise in retail sales, talk has been that we have passed the halfway stage in the credit crunch, George Dubya’s massive tax break has been busy landing on doorsteps across the US, and others have argued the housing crash is over the worst. But yesterday, two pieces of news emerged to put any talk of a US recovery in serious doubt.
Two months ago we told how US consumer confidence had fallen off the edge of a cliff. Well, in June it fell a good deal lower. In fact, the US Conference Board reported a score of 50.4 for its closely-watched headline consumer confidence index. To put that in context, this index stood at 105 last June. In fact the 50.4 reading was the lowest score in 16 years. It was also the fifth-lowest reading ever recorded by the Conference Board, and it has been compiling this data since 1967.
The US consumer is a resilient beast. There’s a saying: write off the US consumer at your peril. This argument has been put forward every time someone has argued the US balance of payments deficit is unsustainable, or consumer borrowing can not continue. But the decline in this index would certainly seem to suggest that, for the time being at least, there is nothing left under the bonnet. Maybe, we will have to wait until improvements in productivity and the resulting extra income this creates makes US debt more manageable.
Meanwhile, while consumer confidence falls as if the full weight of gravity is behind it; house prices seem to be falling just as fast.
For many economists, the Case Shiller Index is the best for giving a true indicator of the strength of US house prices. It’s a weighted index, with a base score of 100 for January 2000. The index is broken down into different regions, but has two indices for measuring national prices: the 10-City Composite and the 20-City Composite indices.
Data goes back to May 1987.
The latest Case Shiller indices measuring data relating to April were out yesterday. The Composite 10 index was down 1.6 per cent on March, 15.3 per cent on April 2007 and 19 per cent from peak in June 2006.
Not all regional indices were down in the month, but all have now fallen over the last 12 months.
Miami tops the chart, seeing prices fall 26.7 per cent over the last year, while Las Vegas, Los Angeles, Phoenix, San Francisco, Tampa and San Diego all saw falls in excess of 20 per cent.
More to the point, inventory levels of unsold stocks of houses relative to sales are near an all-time high. The decline in activity may be slowing, but the massive level of stocks means prices are likely to continue to fall for some time. Capital Economics reckons it will be another year, maybe two, before prices start rising. This means there must be a good chance the Case Shiller index will have fallen by 30 per cent from peak before it recovers – and that would technically be a crash.
Mind you, given that the US housing market has never crashed before, and given that whenever prices have so much as dipped in the past, a recession has followed, it is remarkable that the US economy as a whole has performed so well. Latest thinking suggests she will avoid recession – just.
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