Cracks widen in U.S. economy as orders, house prices fall
Fed chairman sees risks from inflation, ailing home market
By Anne D’Innocenzio - Associated Press
NEW YORK — Three pillars of the U.S. economy — consumer confidence, orders for manufactured goods and home prices — showed surprising cracks yesterday, flashing signals that growth may slow more heading into the important holiday shopping season.
The New York-based Conference Board said its widely watched consumer confidence index fell to 102.9 in November from a revised reading of 105.1 in October. November’s figure was the lowest since August’s 100.2 and well below economists’ expectations of a 106 reading.
That news arrived on the heels of a government report showing orders for big-ticket manufactured goods plunged 8.3% in October — the largest drop in more than six years.
And the median price of a home dropped to $221,000 (U.S.) in October, a decline of 3.5% from a year ago, according to the National Association of Realtors. It was the biggest year-over-year price decline on record for an asset that many Americans use as a gauge of their financial well-being.
The reports drew some air out of any inflated hopes for a robust holiday shopping season. Economists still believe it will be a decent season, however, because of lower gasoline prices, which have put more money in consumers’ pockets. Consumers “are not feeling really good now,” said Gary Thayer, chief economist at A.G. Edwards & Sons Inc., though he added they’re feeling better compared to this past summer when gasoline prices surged.
“We are still positive on the consumer sector. I think it will be a good holiday season,” he noted.
Some of the weaker-than-expected economic news, namely the durable goods and consumer confidence reports, boosted U.S. Treasury bond prices and knocked down yields, a measure of long-term interest rates.
The 10-year Treasury yield fell below 4.50% for the first time since late January on expectations that a slowing economy may force the Federal Reserve Board, which has left interest rates intact since August, to begin lowering interest rates next year.
Federal Reserve Board chairman Ben Bernanke said yesterday that risks from inflation or a worse-than-expected housing slump could further complicate matters for the U.S. economy. In his first speech in months, Bernanke made it clear that he would monitor the situation, particularly labour costs.
In prepared remarks to the National Italian American Foundation in New York, the Fed chairman said “substantial uncertainties” surround the Fed’s outlook.
He noted that the slowdown in the housing market could turn out to be deeper than expected, dragging down overall economic activity even more. In contrast, economic growth could rebound more strongly than expected, which could lead to rising inflation.
Merchants are counting on confident shoppers to keep spending through the holiday season, but worries about job security could make them scour for bargains at the malls and department stores.
High-profile layoffs in the auto industry and steep cutbacks in home building have made consumers uneasy about the labour market, even though government reports have painted a healthy picture for jobs.
The drop in durable orders also provided more evidence that U.S. factories are beginning to feel the effect of the slowdown in the economy and could derail any gains made in the employment market.
“A tighter labour market and a more guarded short-term outlook have combined to curb consumers’ confidence in November,” said Lynn Franco, director of the Conference Board Consumer Research Center. But she added that despite the retreat, “the overall level of confidence remains favourable and continues to suggest that the economy will expand throughout the first half of next year.”
The consumer confidence report — derived from responses through Nov. 14 to a survey mailed to 5,000 households in a consumer research panel — showed that labour market conditions were less favourable than in October.
Those saying jobs are “hard to get” rose to 22.4% from 21.8%.
