US consumer confidence plummets

US consumers are increasingly gloomy about economic prospects

US consumer confidence has unexpectedly dropped to a record low in December, in the face of the US economic slowdown and continuing job cuts.

The index fell to 38, from November’s revised 44.7 figure, though it had been expected to rise.

The dismal job market appears to have outweighed falling oil prices in consumers’ minds, analysts said.

Meanwhile, October house prices in 20 US cities fell by a record yearly rate, according to a key home price survey.

Falling confidence

According to the Conference Board, those respondents saying jobs were “hard to get” rose to 42% in December – up from 37.1% in November, while those claiming jobs were “plentiful” dropped to 6.2% from 8.7%.

The proportion of consumers anticipating an increase in their incomes decreased to 12.7% in December from 13.1% in November.

And those claiming business conditions were “bad” increased to 46% in December from 40.6% in November, while those saying business conditions were “good” declined to 7.7% from 10.1%.

The survey is based on a representative sample of 5,000 US households.

Separately, house prices in 20 US cities fell by a record annual rate of 18.04% in October, according to the The S&P/Case-Shiller home price survey.

Record falls

The index shows that prices of homes is continuing to fall across the US with many areas showing record price falls.

David Blitzer, of Standard & Poor’s said that “home prices are back to their March 2004 levels”.

October’s annual fall was more than had been expected by analysts, who had been predicting a 17% drop.

The city which showed the biggest price-fall was Phoenix, where home prices plunged 32.6% in the year to October – followed by Las Vegas, which was down 31.7% and San Francisco, down 31%.

Overall, house prices for the 20 metropolitan areas in the survey fell 18.04% in the year to October, the largest drop since its inception in 2000.

The annual fall in prices for the top 10 metropolitan areas was 19.06%, its biggest decline in its 21-year history.

Both indices have now recorded annual declines for 22 consecutive months.

Prices in the 20-city index have dropped more than 23% since their peak in July 2006, while the 10-city index has fallen 25% since its peak in June 2006.

None of the 20 cities saw annual price gains in October – for the seventh consecutive month.

‘Decline slowing’

Wall Street’s reaction to this latest housing survey was initially muted, as November figures on the depressed state of the housing market have already been published.

Last week, figures from the Commerce Department showed that sales of new homes in the US had slowed to their lowest level in 17 years in November, while new home prices had dropped by the biggest amount in eight months.

Tim Ghriskey of Solaris Asset Management in Bedford Hills, said this survey was “pretty much right in line with expectations but very depressed”.

“There are signs we believe that the decline in housing prices is slowing and we’re in a bottoming process but clearly this does show that housing prices continue to decline significantly,” he said.

The US housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, the credit squeeze and record mortgage foreclosures has pushed down home prices.

Economists believe the market will not begin to recover until home prices fall far enough to stimulate demand, which has dropped off precipitously.

Global economy woes shake markets

Japanese shares felt the force of the economic uncertainty

Fears about a global economic slowdown, heightened by worsening US job figures, have continued to undermine stock markets around the world.

London’s FTSE 100 index lost 2.3% – taking its weekly decline to 7% – its biggest since July 2002.

Markets in Paris and Frankfurt fell by 2.5% as economy concerns spread.

On Wall Street the Dow Jones index clawed back early losses to edge higher despite figures showing the US economy shed 84,000 jobs last month.

But the benchmark US index still had its worst week since May.

Earlier, Japan’s main share index fell nearly 3% while markets in Hong Kong, China, Australia and India all slid 2%.

‘Ugly’ data

The US labor market figures – which showed the unemployment rate rising to 6.1% – were a further jolt to investors who have had to swallow a slew of poor economic data in recent days.

Economists had been expecting 75,000 jobs to be lost while the government also revised upwards.

“This was an ugly number that pretty much confirms that our economy continues to trend downward,” said Jack Ablin, chief investment officer of Harris Private Bank.

“This just knocks the legs out of any hope of seeing much economic improvement right now.”

‘Uncertainty’

Amid the uncertainty, few investors are willing to buy Masayuki Otani, Securities Japan

The FTSE 100 closed down 2.3% at 5,240.70 points. The last time it lost so much value in a week was more than six years ago in the wake of financial scandals such as Enron and WorldCom.

Markets in Paris and Frankfurt continued their recent downward trend, both the Cac-40 index and the Dax-30 dropping about 2.5%.

The Dow Jones index, which lost 3% on Thursday, rose 32.73 points, or 0.3% to 11,220.96, but still ended down 2.8% on the week.

“Given the fact we were down so much yesterday we’re seeing a bit of a reflex rally with investors wanting to take advantages of some of the bargains,” said Bucky Hellwig, senior vice president at Morgan Asset Management.

The Nasdaq index slipped 3.16 points, or 0.1% to 2,255.88, ending the week 4.7% lower.

Earlier Japan’s benchmark Nikkei index fell 361.54 points to 12,196.12 amid a widespread sell-off of shares in Asia.

The Hang Seng index fell more than 3% in Hong Kong while markets also fell sharply in China, Australia and India.

“Amid the uncertainty, few investors are willing to buy,” said Masayuki, Otani, chief market analyst at Securities Japan.

“Several bad things happened at once,” he added, explaining the fall.

Gloom

Worries about inflation have prevented central banks in Europe from cutting interest rates to help forestall a slowdown.

But analysts believe this could change soon with economic forecasts across Europe looking increasingly gloomy.

The European Central Bank cut its 2009 growth forecast from 1.5% to 1.2% on Thursday while the UK economy stalled in the second quarter.

In a separate development, the Russian rouble fell against the dollar a day after Russia’s central bank intervened to support the currency amid concerns about a flight of foreign capital after the conflict with Georgia.

The central bank sold up to $4bn in reserves, the Financial Times reported, after the rouble slipped to its lowest level since February 2007.

US rules out new economic package

Jobs are being lost in the service, business and manufacturing sectors

The United States government says it does not see an immediate need for new measures to stimulate the US economy despite a sharp rise in unemployment.

The latest figures show a rate of 6.1% – the highest since December 2003.

A White House spokeswoman said that while the figures were disappointing, the existing economic stimulus plan was having the impact intended.

A call for more action had been made by the Democratic Party presidential candidate, Barack Obama.

A higher-than-expected 84,000 jobs were lost last month, which together with the unemployment rate has added to concern about the US economy and its ability to stave off a recession.

In a further blow, the Labor Department revised upwards job loss figures for each of the past two months.

The Federal Reserve said earlier that economic activity remained “weak”.

A separate report by the Mortgage Bankers Association said that almost one in 10 US homeowners were behind with their mortgage payments or was in foreclosure procedures.

The 9.2% default rate between April and June was up from 8.8% in the previous quarter, and nearly double the rate one year ago.

‘Convincing evidence’

The number of jobs lost last month was significantly higher than the 75,000 forecast by economists.

All sectors of the economy were affected with manufacturing worst hit, shedding 61,000 jobs.

This is more convincing evidence that the economy is still in trouble Gary Thayer, Wachovia Securities

The labor market has worsened noticeably in recent months, reflected by the fact that it is now apparent that more jobs were lost in June and July than was previously thought.

Revised figures show that in June, 100,000 jobs were lost while in July 60,000 jobs disappeared. This was up from the 51,000 figure initially forecast for both months.

“It seems unemployment in the US really is accelerating,” said the BBC’s North America business correspondent, Greg Wood.

“There do not seem to be many sectors of the US economy which are hiring.”

‘Clearly deteriorating’

In the first eight months of 2008, 605,000 jobs have been lost.

Employers have now reduced their payrolls for eight straight months, with the dramatic downturn in the housing market and the credit crunch hurting all sectors of the economy.

“This is more convincing evidence that the economy is still in trouble,” said Gary Thayer, senior economist at Wachovia Securities.

“The economy is clearly deteriorating.”

Political focus

Both candidates in November’s Presidential election are under pressure to come up with concrete proposals to help the growing number of people out of work and families battling against rising living costs.

Although the US economy grew a robust 3.3% in the second quarter, businesses are struggling to cope with the high cost of raw materials and energy, fragile consumer confidence and weaker export markets.

The Federal Reserve, which meets to decide on interest rates next week, has warned that the US is facing the twin threats of weak growth and rising inflation.

The bleak employment picture means the Fed is unlikely to raise rates in the foreseeable future while further cuts seem equally unlikely against a background of rising inflation.

“The jobs number is weak again but we think this probably is not the time to panic,” said Steve Goldman, strategist at Weeden & Co.

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Pakistan ‘needs help’ on economy

Asif Ali Zardari faces huge challenges if he becomes president

Pakistan needs a “substantial” injection of external funds if it is to improve its worsening economic situation, an IMF official has said.

Mohsin Khan said Pakistan had not yet requested help from the IMF, which some economists have called for, to address a growing balance of payment crisis.

A falling rupee, soaring inflation and dwindling currency reserves are among Pakistan’s mounting economic problems.

Mr Khan said ministers planned to cut borrowing and tap donors for support.

Economic distress

Stabilizing Pakistan’s faltering economy will be one of the main priorities for Asif Ali Zardari, who is widely expected to be elected president following elections this weekend.

Pakistan’s public finances have deteriorated in the past 18 months amid political instability and violence which culminated in the resignation of former President Musharraf last month.

It seems the government is not getting its act together Yang-Myung Hang, Lehman Brothers

The rupee has fallen to a record low against the dollar while currency reserves have shrunk from $16.5bn ten months ago to $9.38bn.

The soaring cost of oil imports has eaten into the country’s reserves while the spiraling rate of inflation, which has risen to 25%, has sparked public anger.

Growth in the economy, which performed strongly in the early years of the Musharraf era, is expected to fall to a six-year low this year.

Pakistan’s fragile coalition government is pursuing a range of options to bolster confidence in the economy, including seeking $1bn in loans from the World Bank and the Asian Development Bank.

It is also in talks with Saudi Arabia to defer payment on an estimated $5.9bn of oil it has purchased.

Security concerns have put off some investors

Some economists believe it is inevitable Pakistan will have to turn to the IMF for help should it find itself struggling to pay its creditors.

Such a move could prove unpopular as any IMF funding would likely require undertakings to slash government borrowing and spending.

On the other hand, such a scenario is unlikely to materialise given the level of US financial and logistical support for Pakistan, a key ally.

Seeking stability

The IMF said it was encouraged that the government was committed to measures to improve its financial position, including privatizing assets and raising funds from the international markets.

“If measures outlined are implemented and sufficient financing is secured quickly,” Mr Khan – director of the IMF’s Middle East and Central Asia Department said, “the authorities could stabilize the economy this year and start to build up reserves.”

Despite attempts by the country’s central bank to reassure foreign investors, concerns remain about the new government’s ability to tackle multiple security and economic challenges.

“It seems the government is not getting its act together, making it difficult to actively address the decline in forex reserves,” said Yang-Myung Hang, a sovereign rating analyst at Lehman Brothers.