Americans worry about sagging home prices, red hot oil prices

28/05/2008 03h37

WASHINGTON (AFP) – Americans are becoming increasingly worried about the struggling US economy as home sales remain stuck in a rut and as red hot oil prices stoke inflation fears, a flurry of reports showed on Tuesday.

The world’s largest economy has grown at a sluggish 0.6 percent pace, on an annualized basis, during the past two quarters and some economists believe a recession is on the cards.

Several new surveys on home sales and consumer confidence suggest economic concerns are becoming more pressing to Americans, who are concerned about their home values, job security and rising fuel bills.

A government report showed that new home sales rose an unexpected 3.3 percent in April from the prior month to a seasonally adjusted annual pace of 526,000 homes.

While on the surface that sounded like good news, sales have slumped a hefty 42 percent in the 12 months to April and economists say the larger market for existing homes sales remains stuck in a rut amid one of the worst US housing slumps in decades.

“New homes are still a tough sell. Despite aggressive pricing, half of completed new homes are still sitting on the market after eight months,” said Patrick Newport, an economist at Global Insight.

The two-year old housing meltdown has been exacerbated in the past nine months by a broad credit crunch which has swept through the banking sector, making it harder for Americans to obtain mortgages and credit.

Another closely monitored survey released on Tuesday, the Standard & Poor’s Case-Shiller index of national home prices, fell a record 14.1 percent in the first quarter compared with a year ago.

The steady drumbeat of downbeat economic news appears to be taking a toll on consumer confidence which economists track closely because consumer spending accounts for two-thirds of all US economic growth.

The Conference Board — a private research firm — reported that consumer confidence plunged to a 16-year low in May amid rising economic jitters and as rocketing oil prices stoked inflation expectations to an all-time high.

The research firm’s consumer confidence index tumbled to 57.2 from 62.8 in April, marking its lowest reading since October 1992.

“The numbers suggest that consumers are on the brink of one of the largest downturns in the post-World War II era. Not surprising considering the US economy is facing the largest energy shock on the record books,” Merrill Lynch economist David Rosenberg said in a research note.

Lynn Franco, the director of The Conference Board’s consumer research center, said surging gasoline prices had made consumers more nervous about the economy’s direction.

Average gasoline prices in some parts of the country are threatening to burst the four dollar-a-gallon mark for the first time on the back of soaring oil prices and news reports suggest Americans are cutting back on road trips.

World oil prices tumbled further from recent record peaks of over 135 dollars a barrel Tuesday to 128 dollars, but remain high.

Rocketing gasoline costs are hurting big US auto manufacturers as well as consumers’ pockets.

The Ford Motor Company said last week that it was cutting production of gasoline-guzzling large trucks and sport utility vehicles as it struggles to return to profitability.

Economists are divided on whether the economy will fall into a recession or not this year. Some believe the economic woes make a recession inevitable, while others argue that the economy is proving more resilient than thought a few months ago.

The Federal Reserve has vied to offset slowing economic growth by slashing short term interest rates, its key base rate is presently pegged at 2.0 percent, but economists say the central bank has signaled that further rate relief will not be forthcoming anytime soon.

“The average household is being pressured on all sides. And there is little reason to think conditions will change anytime soon,” said Joel Naroff, the president of Naroff Economic Advisors.

AFP

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