Consumer confidence fell in February as home-buying attitudes dropped to their lowest level in 15 years, according to the University of Michigan’s Survey of Consumers released today.

“The latest survey indicates that consumers have adopted a less favorable outlook for economic growth, expressed heightened concerns about potential increases in unemployment, and no longer anticipate any additional declines in the inflation rate,” according to Richard Curtin, the director of the University of Michigan’s Surveys of Consumers.

The Index of Consumer Sentiment was 86.7 in the February 2006 survey, down from 91.2 in January and 94.1 in February 2005. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, fell to 74.5 in February, from 78.9 in January and 84.4 in the February 2005 survey. The Current Economic Conditions Index was 105.6 in February, down from 110.3 in January and 109.2 in the February 2005.

Favorable home-buying attitudes fell to their lowest level in 15 years in February due to increased resistance to high home prices and rising mortgage rates. “Complaints about high home prices were voiced by more consumers in February than any other time during the past quarter century,” Curtin added.

Consumers have not become pessimistic about future economic prospects as much as they have simply expressed a somewhat greater sense of uncertainty. “Robust growth in jobs and wages are needed to effectively counter the uncertainty caused by higher prices and rising interest rates,” Curtin said.

While personal consumption expenditures are expected to grow by nearly 3 percent during 2006, new residential investment is expected to decline. “The critical issue is how much of the weakness in the home market spreads to other purchases via reduced cash-outs of home equity,” said Curtin. The size and frequency of cash-outs depend on changes in home prices and mortgage rates, with changes in both expected to limit cash-outs.

Job losses were reported more frequently when consumers were asked to identify recent economic changes they had heard. “One-third of all consumers specifically cited job losses in February, up from one-in four in January and just one-in-five last February,” Curtin said. Moreover, the national unemployment rate was expected to increase during the year ahead by 40 percent of all consumers in the February2006 survey, while just 12 percent expected any further declines.

Consumers more frequently reported that their financial situation had worsened due to higher prices in the February survey. “Nearly one-third of all consumers reported in the February survey that their finances had worsened, mainly due to higher prices,” Curtin reported. Following the rapid decline in inflation expectations in late 2005, no additional declines were reported in the latest survey. Consumers expected a year-ahead inflation rate of 3 percent in February, unchanged from January, but well below the 4.6 percent recorded in October.


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