Despite growing weakness in the housing market, consumers remained cautiously upbeat about prospects for the overall economy in a November survey of consumer confidence.
The index of consumer sentiment was 92.1 in the November 2006 survey, just below the 93.6 in October and substantially above the 81.6 recorded last November, according to the University of Michigan’s Survey of Consumers. The November 2006 data reversed only a minor part of last month’s surge, as the index remained 10 points above the level recorded three months ago.
Home-price declines have become the most common factor cited by consumers in their evaluations of home-buying conditions. The proportion of consumers that reported declines in home prices has doubled in the last three months, with nearly half of all consumers citing home-price declines; in just three other surveys during the past 50 years have more consumers mentioned home-price declines.
Consumers are uncertain about how much further home prices will fall and therefore their reluctance to purchase a home has remained high, according to the survey. Consumers wanted to avoid buying a home and then realized that the price continued to fall after their purchase. Avoiding buyer’s remorse is second only to the sense of loss incurred from selling a home for less than you had anticipated just a few months ago. No turnaround in the housing market is expected until mid-2007.
It’s clear that consumers are worried about costs in all purchases, not just homes. “The highest proportion of consumers in more than 50 years have stressed that their holiday purchases will be contingent on the availability of price discounts,” according to Richard Curtin, director of the University of Michigan’s Survey of Consumers. Repeated spikes in gas prices have left consumers with more debt and less savings than ever before, with much greater financial stress expressed by lower-income households.
“While upscale department stores will have a relative advantage compared with discount stores, all consumers will be trying to stretch their holiday budgets by shopping until they find lower prices,” Curtin said.
Consumers will remain the engine of overall economic growth. “The consumer data indicate that despite declines in residential investment, inflation-adjusted personal consumption expenditures will advance at a 3 percent rate of growth during the year ahead,” Curtin said. The strength in consumption spending will propel the economy forward at a 2.5 percent growth rate in GDP during 2007, a slower but still positive pace of growth.
The index of consumer expectations, a closely watched component of the index of leading economic indicators, was 83.2 in the November 2006 survey, just below the 84.8 in October, but well ahead of the 69.6 recorded last November. The current economic conditions index was 106 in November, slightly below the 107.3 in October, and significantly above the 100.2 recorded a year ago.
Price discounts have dominated consumers’ purchase plans to a greater extent than ever before. “More consumers made their purchase plans for vehicles, furniture, appliances, home electronics, and other household durables contingent on the availability of price discounts than ever before in the more than 50 year history of the surveys,” Curtin said. Nearly half of all consumers specifically cited price discounts when asked to explain the views on buying conditions.