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Wednesday, February 26, 2003

US Consumer Confidence Takes a Tumble

Everyone says its the Iraq jitters. I hope they are right. 2002, may I remind you, was the year of the heroic American consumer. The year the loyal US citizen reached for their wallet, or rather credit card, to try to spend the global economy out of trouble. But it was always recognised that this could only be a temporary stopgap, and that the only key to long term recovery lay in burning off the capacity excesses of the late ninetees, and getting investment to take over part of the heavy lifting. Well the recovery in capex is still pretty feeble, and it seems the consumers - or rather their credit cards - are getting worn down. Added to this is the continuing boom in US housing. Clearly when real interest rates on housing purchases are dropping ever lower, and other forms of saving are either downright risky (equities, pension plans) or offer a low return, housing assets have probably converted themselves into the principal form of saving for an aging american populace, if and only if, as they say, property prices sustain the rise. Because, if to the contrary, there's going to be a 'correction' at some point in the property market...........well let's not think about that right now. As they keep saying, it's probably just the Iraq jitters.

Consumer confidence plunged in February to its lowest level in nearly 10 years, dragged down by the prospect of war with Iraq. The Consumer Confidence Index fell almost 15 points to 64.0 — its lowest reading since October 1993 — from 78.8 in January, the Conference Board (news - web sites) reported Tuesday. Analysts were predicting a reading of 77.0. "On all fronts, it's jitters about the upcoming war with Iraq," said Josh Feinman, chief economist for Deutsche Asset Management in New York. The Dow Jones industrials fell as much as 138 points to a fresh four-year low before staging a late-day rally on bargain hunting. The Dow rose 51.26 points to close at 7,909.50, while the Nasdaq composite index gained 6.6 points at 1,328.98. Economists closely track consumer confidence because consumer spending accounts for two-thirds of U.S. economic activity. "The gloom is deepening," said economist Oscar Gonzalez of John Hancock Financial Services in Boston. "A stagnant job market, rising oil prices, slumping stock prices and the threat of war with Iraq, all of these seem to be pressing down heavily on consumers." Still, Americans continued their home-buying frenzy last month as the housing market remained one of the few bright spots in the economy. Sales of previously owned homes surged in January to their best month ever, at a seasonally adjusted annual rate of 6.09 million, the National Association of Realtors said Tuesday. That represented a strong 3 percent increase from December and defied analysts' expectations that home sales would dip slightly to a rate of 5.80 million. "It's mortgage rates," said David Lereah, the association's chief economist. He said low mortgage rates continue to be "the fuel for the housing engine." The average, fixed-rate 30-year mortgage dropped to 5.92 percent in January — the lowest level since the early 1960s. The average in December was 6.05 percent.
Source: Yahoo News

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