Investing

Where Has Consumer Confidence Gone?

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Source: Thinkstock
Today’s report from the Conference Board on consumer confidence was disappointing, to say the least. As we noted, it may not be a shock to many observers, but consumer confidence is turning south at a rapid pace.

Yet house prices are rising and the inventory of housing is (slowly) improving, giving potential home buyers a wider range of options. Unemployment continues to tick down, again slowly, and equity prices are near record highs. So what gives?

Any conclusion is tenuous at best, but let’s hazard a few guesses. First, the tax increases that went into effect in January are now beginning to be felt among middle- and lower-income Americans. Gasoline prices, though moderating in the past few weeks, rose sharply in February and consumers are wary about the direction of fuel prices. Wage increases have been modest at best, adding to consumer wariness.

These constrictions are closely felt by consumers, whereas the impact of rising home prices is far more abstract. A house may be worth more now than it was a year ago, but its value can only be realized if the house is sold or refinanced. Refinancings are down slightly and lenders are still demanding gold-plated credit for both new purchases and refinancings. Many consumers do not want to sell, nor do they qualify for a refinanced mortgage or a new home purchase.

The consumer confidence index out today revealed far more worry about the future than about the present. Americans do not see themselves as gaining any economic traction in the next six months. Until they believe that they are doing more than just getting by, house price increases and stock index records will not move the needle on their confidence.

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