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TWO-FER TUESDAY: CONSUMER CONFIDENCE SOURS, HOME PRICE GROWTH SAGS

Once again, data on Tuesday arrived in duplicate. And today investors returned from their long holiday weekend to discover both consumer confidence and home price growth continue to soften.

The mood of the American consumer, whose spending accounts for about 70% of the U.S. economy, has soured slightly this month.

The Conference Board's (CB) consumer confidence index USCONC=ECI shed 0.7 points in May to land at 93.1, a more optimistic reading than the 92.0 print analysts expected.

Digging deeper, survey participants' assessment of present conditions dropped by 2.6%. But near-term expectations improved by 1.4%, likely related to the two-week U.S.-Iran ceasefire that went into effect during the survey period.

"Consumer confidence edged downward in May as the inflationary impacts of the war in the Middle East intensified,” writes Dana Peterson, CB's chief economist. “Consumer appraisals of current business conditions and the current labor market were moderately less positive compared to last month. This was somewhat offset by modest improvements in consumers’ expectations for business conditions and the labor market six months from now."

A reminder for data geeks: a large, prolonged gap between the present situation and expectations - as seen in the graphic below - is often a harbinger of recession. So this month's narrowing of the gulf between the two should ease fears of a near-term economic downturn:

Home prices in major U.S. cities unexpectedly softened by 0.2% in March, in defiance of the meager 0.1% growth economists predicted.

Year-over-year, the Case-Shiller 20-city composite USSHPQ=ECI increased by 0.8%, cooler than February's 0.9% annual increase, and softer than the 1.0% consensus.

"More than half of the 20 major U.S. housing markets recorded year-over-year price declines in March, reflecting a broadening and deepening housing slowdown,” says Nicholas Godec, head of fixed income tradables & commodities at S&P Dow Jones. “With consumer inflation accelerating to roughly 3.3% in March, U.S. home values have now fallen in real terms for the 10th consecutive month, underscoring an ongoing erosion of inflation-adjusted housing wealth."

"Mortgage rates, meanwhile, have resumed climbing. The 30-year fixed rate dipped below 6% in late February but rebounded to roughly 6.4% by the end of March, re-intensifying the affordability squeeze on buyers and potentially further damping home sales and price growth,” Godec adds.

The geographic divergence appears to be widening.

Among the cities in the composite, Chicago and New York once again led the year-over-year gainers, rising 6.1% and 4.0%, respectively. On the other end of the scale, home prices in Seattle were down 2.5% from last year, while in Denver, they fell at a 2.0% annual rate.

(Stephen Culp)

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