Consumer Confidence Sinks to 50.4, a 5-Month Low; Home Prices Rise; Case-Shiller a Very Lagging Price Indicator

Consumer confidence has plunged to 50.4. To put the number in perspective, it was averaging 98 in the last expansion.

Bloomberg reports U.S. Economy: Consumer Confidence Slips to Five-Month Low

The Conference Board’s sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months, figures from the New York-based private research group showed today. Another report showed home prices rose more than forecast in May as a government tax credit temporarily underpinned sales.

“Faith in the economic recovery is failing,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who had forecast the confidence index would drop to 50.3. “It’ll be 2013 before we see any semblance of normality in the labor market. It means weaker purchases.”

Home prices in 20 cities climbed 4.6 percent in May from the same month last year, exceeding the median forecast of economists surveyed and the biggest 12-month gain since August 2006, a report from S&P/Case-Shiller also showed. Home sales plunged following the April 30 contract-signing expiration of a government incentive worth up to $8,000, raising the risk that property values will slacken in coming months.

“There may still be some residual impact from the homebuyers’ tax credit,” David Blitzer, chairman of the index committee at S&P, said in a statement. “It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy.”

Case-Shiller a Very Lagging Price Indicator

It would help if analysts understood (and properly explained) what is happening and how Case-Shiller works.

Calculated Risk explains in Survey shows house prices falling in June, but long wait for house price indexes

Campbell Surveys put out a press release this morning: Home Prices Tumble in Most Categories During June (no link).

The Case-Shiller index is a three month average and is released with a two month lag. The Case-Shiller house price index to be released tomorrow will be for a three month average ending in May.

The first Case-Shiller release with July prices will be released at the end of September - and that will include the months of May, June and July! And prices were probably up in May and June.

And prices don't fall overnight. Based on the timing of the above survey, prices fell from May to June - and those transactions will probably mostly closed in August. That is why Popik is saying the price declines will not show up in house price indexes until October of November.

With that in mind, let's revise David Blitzer's statement so that it actually makes sense.

“It still looks possible that the housing market might bounce along the bottom for the foreseeable future, Case-Shiller reported prices will rise for a few more months before showing any real improvement that will filter through to the rest of the economy. sinking again this Autumn. Anyone expecting home price improvements to filter through to the rest of the economy simply does not understand how lagging the Case-Shiller index is, the change in consumer sentiment, or how rapidly the real economy is deteriorating.”

Indeed, I expect a Expect Second-Half Housing and Durable Goods Crash.

The key reason is consumer spending plans have crashed as noted in Consumption Inflection Point - No One Wants Credit; Consumer Spending Plans Plunge.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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