Tuesday, July 27, 2010

Consumer Confidence Down; Case Shiller Up

From Bloomberg:

Consumer confidence dipped in July-again over worries about the jobs picture and over income prospects. The overall consumer confidence index slipped to 50.4 in July from an upwardly revised 54.3 in June (initially 52.9). Analysts projected July to print at 51.0. The latest decrease was led by a drop in expectations to 66.6 from 72.7 in June. But the present situation sub-index also declined-to 26.1 from 26.8.

Those seeing jobs as hard to get rose to 45.8 percent in July from 43.5 percent the prior month. On the issue of expectations of income, 17.5 percent see income down in six months, compared to 16.8 percent in June. Only 10 percent expect higher income in six months, compared to 10.6 percent in June.

The good news, however, is that buying plans have picked up in some categories-albeit from low levels. Those planning to buy a car within six months rebounded to 4.5 percent from 4.1 percent in June. Those planning to buy a major appliance within six months jumped to 28.5 percent in July from 23.7 percent in June. However, those planning to purchase a house edged down to 1.9 percent from 2.0 percent in June.

The above chart shows the number has dropped two months in a row. However, last months number was revised higher. This drop should not be surprising considering the news for the last month and a half has been more negative than positive. However, this occurred at time when new home sales jumped higher (although from a low number), indicating that consumer sentiment is entirely depressed. And on that note:

The Case-Shiller home price index shows prices showing strength during spring. The unadjusted composite 10 index in May jumped 1.2 percent, following a 0.7 percent surge the month before. The year-on-year rate improved to 5.4 percent from 4.6 percent in April. The unadjusted index, of course, reflects typical seasonal strength that occurs during spring and summer months-the peak of housing demand during the year. Nonetheless, the seasonally adjusted 10-city index was healthy with a 0.5 percent increase-matching the gain in April.

A caveat is that the Case-Shiller index is based on a three-month-moving average, so the May release is an average of the March-April-May period which included two months' of data boosted by special tax incentives. This makes interpreting the marginal move (latest month) tricky. Given that both April and May are above February and March percentages seasonally adjusted, the latest number still looks good.

Certainly, the recent string of SA advances is due in part to coming off a low base. Nonetheless, the latest report indicates that prices are holding despite the ending of special incentives. On the news, equity futures moved higher after already being boosted by favorable earnings reports from DuPont and Lockheed. Treasury yields also firmed.

We'll have to wait for the next few months of data to see what the long-term effect of the tax credit expiration is. However, prices have been holding their own for about a year which is encouraging given the overall market situation.