The level of consumer confidence in the United States rose unexpectedly in November, rebounding from a record low. This surprising change apparently came as concerns about the rising rate of unemployed coupled with tumbling financial markets was alleviated by falling gas prices. The Conference Board’s index of consumer confidence suddenly climbed to 44.9, which while the second lowest reading since 1974, is still a nice rise from 38.8 which was recorded last month. A separate report showed that home prices were continuing to drop, which was further undermining the level of consumer spending.
Consumers are retrenching themselves amid a startling increase in job losses and falling stocks and home prices, especially amidst what is being regarded as the worst credit crunch in more than seven decades. Still, the falling gasoline prices along with the end of political uncertainty have conformed consumers somewhat, according to some economists. Consumers are still largely hunkered down accordingly to financial economists, and a contraction in consumer spending is still expected in this forth quarter. Still, since the consumer confidence was projected to remain at around 38 in this month following the 38 that was reported in October, many economists are surprised to have seen an increase in consumer confidence as a result of the lower gas prices this month.
Earlier today, the S&P / Case Shiller home price index taken for 20 United States metropolitan areas in September showed a drop of 17.4 percent from a year earlier, which is the largest change since 2001 when year over year records began. The economy contracted at around a 0.5 percent annual pace between July and September, which was more than was initially estimated. Consumer spending began to drop at the quickest pace since around 1980. Stocks did manage to maintain earlier gains since the Federal Reserve took new steps to unfreeze credit options not only for homeowners, but also consumers and small businesses as well. The central banks committed as much as $800 billion dollars to these new initiatives hoping to create change in consumer confidence and spending accordingly.
The housing slump, which is what was responsible for triggering the credit crisis in the first place, is probably going to extend at least into a forth year. Foreclosures continue to run at a record rate, which is increasing how many properties are going up for sale, and is pushing home prices down in the process. Luckily, the outlook on the entire thing is improving. The improvement in consumer confidence this month is reflecting the general expectations among consumers that the economic situation cannot get much worse than it already is. Despite the improvement in consumer expectations index this month, consumers still seem to remain extremely pessimistic. Accordingly, the possibility that the economic is going to improve in the first half of the following year is still going to remain highly unlikely unless the economy experiences a great amount of positive change in the next couple of months.
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This is such good news because the markets now are totally driven by emotion. If the government moves forward with plans to drop mortgage interest rates to below 5%, confidence levels should surge upward again.
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