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US consumer confidence drops in June

By Sarah O’Connor in Washington

Published: June 30 2009 15:31 | Last updated: June 30 2009 16:45

Confidence among US consumers dropped in June after two months of building optimism, surprising economists and knocking the wind from stock markets.

The Confidence Board, an industry group, said its index of consumer confidence dropped to 49.3 this month from a revised 54.8 in May. Economists had expected a figure of around 55, but consumers are feeling worse about the current state of the economy and about where they expect it to be in six months’ time.

Confidence built over the spring amid talk of “green shoots” in the economy and a rising stock market, but this month people say business conditions are worse and jobs are becoming harder to find.

Just 17.4 per cent of consumers surveyed said they expected more jobs to appear in the months ahead, down from 19.3 per cent in May.

The pace of lay-offs has lessened somewhat recently but the unemployment rate has leapt to 9.4 per cent, creating a swelling pool of people searching for a shrinking number of jobs.

“For consumers I think the light bulb finally went on and they said ‘you know, less bad is probably not good enough, “less bad” doesn’t pay the bills,’” said Mark Vitner, senior economist at Wachovia. “It may be that consumers need to see a tangible improvement in their own conditions before they buy into the idea the economy is improving.”

There was some positive news on Tuesday, though, as separate figures showed the pace of the US housing downturn abated in April.

House prices in 20 metropolitan areas fell 0.6 per cent month-on-month in April, according to the S&P Case-Shiller home-price index, following a 2.2 per cent decline a month earlier.

Prices were still 18.1 per cent lower than they were a year ago, in a sign of how savaged the housing market has been during this recession. Economists, however, were expecting a worse figure of 18.6 per cent.

“While one month’s data cannot determine if a turnaround has begun, it seems that some stabilisation may be appearing in some of the regions,” said David Blitzer, chairman of the S&P index committee. However, he warned that the spring and summer are traditionally stronger months for house prices, “so it will take some time to determine if a recovery is really here.”

Eight of the 20 areas recorded rising prices, including Dallas, Washington DC, San Francisco and Boston. Areas where prices were bumped up by speculative buying during the bubble years remained the hardest hit, such as Phoenix, Miami and Las Vegas.

The housing market has been at the epicentre of the US recession as collapsing prices kicked off a wave of defaults on parcels of mortgage debt held by banks. The Case-Schiller index has fallen by almost a third since the peak of the market in mid-2006, and many believe prices must stop falling before a broader economic recovery can begin.

Delinquency rates on the least risky mortgages more than doubled in the first quarter from a year earlier, indicating that the pain that began in the “subprime” area is spreading as more people struggle to meet their mortgage payments.

Prime mortgages 60 days or more past due climbed to 2.9 per cent, from 1.1 per cent at the same point in 2008, according to the Office of the Comptroller of the Currency and the Office of Thrift Supervision

“I’m very concerned about the rise in delinquent mortgages and foreclosure actions,” said John Dugan, Comptroller of the Currency, but added that he was heartened by the rising number of people modifying their mortgages to make them more manageable.

Copyright The Financial Times Limited 2009

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