The widely watched Case-Shiller house price index fell to a cycle low in March. It is now at a nine-year low and 33% below its 2006 peak – a bigger price fall than during the Great Depression. The Conference Board’s consumer confidence index fell back to a six-month low of 61 in May. It remains far below its long-term average of 93. Bank of America Merrill Lynch is now pencilling in annualised growth of 2%, down from an original estimate of 2.8%. Since the recovery officially began in 2009, growth has averaged a historically tepid 2.8%.
What the commentators said
“Home prices continue on their downward spiral with no relief in sight,” said David M Blitzer of Standard & Poor’s. Credit remains tight and high unemployment is denting confidence. Then there’s the “glut of houses on the market” due to a flood of foreclosures, which won’t abate soon, said Jacob Goldstein on NPR.org.
The sliding prices for their main asset help explain the latest dip in consumers’ confidence. This is also being squeezed by high petrol prices and the still-high unemployment rate of around 9%. Throw in household debt levels and consumers, who account for around 70% of the economy, “still do not have the ability or willingness” to boost spending significantly, said Capital Economics. “It’s very hard to generate a rapid recovery when rapid recoveries are historically driven by housing and the consumer,” said Nigel Gault of IHS Global Insight.
Manufacturing, meanwhile, has slowed, and the economy can no longer count on government spending as the US begins to tackle its debt. Another fiscal worry is that political infighting in Congress could prevent it raising America’s official borrowing ceiling when America runs out of money this summer. This would imply a US debt default. Given the economy’s huge public and private debt loads, it was never realistic to expect a fast recovery from the credit crunch, said Carmen Reinhart of the Peterson Institute. Throw in the severely damaged labour market, and a long period of sub-par growth beckons.