The Conference Boards Consumer Confidence Index dropped 6.6 points to 39.8 in October. This reading is approaching the recession low of 25.3 recorded in February 2009. The Present Situation Index fell 7.0 points to 26.3, while the Expectations Index dropped to 48.7 from 55.1 in September. Essentially, the latest consumer confidence numbers are raising a red flag in an already weak economic environment.
The outlook of consumers has taken a big hit in the past six months (see Chart 2), with shaky financial markets, a weak housing market, and worrisome labor market playing an important role.
Survey respondents have become increasingly pessimistic about labor market conditions. The number of respondents indicating jobs are hard to get increased to 49.4% from 47.1% in September and the number indicating that jobs are plentiful declined to 3.4% from 5.6% in October. The net of these two indexes has a positive correlation with unemployment rate and it held nearly steady in October (43.7 vs. 43.8 in September). The implication is that an unchanged unemployment rate of 9.1% in October is entirely possible.
August 2011 Home Prices: Small but Noteworthy Improvement
The seasonally adjusted Case-Shiller Price Index held steady in August compared with July. On a year-to-year basis, the index fell 3.8%, the smallest decline since February 2011. The FHFA House Price Index of August dropped 4.0% from a year ago, the smallest reduction since December 2010. The decelerating trend of both home price indexes suggests that home prices are stabilizing, albeit gradually in small magnitudes. However, the large supply of foreclosed property presents a challenge and bodes poorly for a rapid improvement of home prices.