Consumer Confidence Hits 16-Year Low

June 3, 2008--First quarter GDP grew at a better rate than initially reported. The sale of new homes increased in April. However, economic uneasiness continued to weigh on the minds of consumers, driving consumer confidence to a 16-year low. Finally, personal income inched upward in April as inflation restricted larger gains in income growth.

 

Gross Domestic Product
The Bureau of Economic Analysis' latest estimate of 1st quarter GDP revealed that the economy grew at a 0.9% annual rate, upwardly revised from their first estimate of 0.6%. The number of positive factors for growth is dwindling, as positives included consumer spending on services, exports, and federal government spending during the first quarter. Negative factors included residential construction, consumer spending on durable goods, and increased imports (which hurts GDP growth). The overall economy is very weak, especially as the effects of the faltering housing and credit markets ripple through the broader economy.

 

New Home Sales
New home sales increased an unexpected 3.3% in April to 526,000 units, following a drastic downward revision of 11.0% in March (originally reported as a decline of 8.5%). Furthermore, inventory made a slight improvement, down to 10.6 months in April, an improvement over March's supply of 11 months. The median price of a new single family home also increased and stood at $238,303 in April after a significant decrease in March. Though the latest numbers are promising, a quick recovery in the housing market is unlikely due to tightened lending standards and continuing uncertainty in financial and credit markets.

Consumer Confidence
Consumer confidence declined in May, plunging 5.1 points to 57.2 from 62.3 in April. Currently, the index stands at a 16-year low. Increased energy prices, uncertainty in financial, housing and credit markets, tight household finances, and a weakening labor market continue to worry consumers.

 

Personal Income
Personal income rose 0.2% in April, down from the 0.4% increase in March. However, on the inflation front, both the top-line and core (which excludes food and energy prices) PCE deflators increased, at 0.2% and 0.1%, respectively. On a year-ago basis, the PCE deflator has increased 3.2% while the core PCE increased to 2.1%. The savings rate held steady at 0.7%, as consumers save more to pay off debts, face decreased wealth, and remain anxious about the labor market.