U.S. consumer confidence collapsed this month and home values plunged in December, the latest evidence of a deepening economic slump that Federal Reserve Chairman Ben S. Bernanke today warned may last into 2010.
The Conference Board’s confidence index dropped more than anticipated to 25, the lowest level since data began in 1967, the New York-based research group said today. Another report showed home prices dropped a record 18.5 percent from December 2007.
Bernanke called for “strong” action by policy makers as the Obama administration tries to mend the breach in confidence with stimulus plans aimed at creating jobs and keeping Americans in their homes. Macy’s Inc. and Home Depot Inc. led retailers’ shares higher on profits that topped analysts estimates after cutting payrolls and inventories as sales slumped.
“We’re in for a pretty long haul and the recovery won’t be quick and particularly strong when it comes,” said Julia Coronado, a senior economist at Barclays Capital Inc. in New York. “Chairman Bernanke has been saying this and President Obama has been saying this and consumers are getting the message. We just can’t seem to find the end to this housing downturn.”
Stocks advanced the most in a month, halting a six-day drop, after Bernanke said banks didn’t need to be nationalized. The Standard & Poor’s 500 index rose 4 percent to close at 773.14. Treasury securities fell as stocks rallied.
More Than Anticipated
The drop in confidence exceeded even the lowest estimate of the 72 economists surveyed by Bloomberg News. The median forecast called for the index to drop to 35, and projections ranged from 26.7 to 42.
Growing pessimism over employment prospects contributed to the slump in confidence. The share of consumers who said jobs are plentiful slumped to 4.4 percent from 7.1 percent last month. The proportion of people who said jobs are hard to get increased to 47.8 percent, the highest level since 1992.
Americans also grew more concerned about their financial well-being in future months. The gauge of the outlook for the next six months decreased to 27.5, also the lowest on record, from 42.5 in January.
The share of respondents expecting their incomes to rise over the next six months dropped to 7.6 percent from 10.3 percent.
‘Bottom Falls Out’
“Just when you think confidence can’t go any lower, the bottom falls out of it, and you can be sure the rest of the economy is not far behind,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, which had the lowest forecast. “If consumers’ spending matches their flagging spirits, this recession is going longer and deeper.”
The drop in home prices reflected 20 metropolitan areas with records going back to 2001, according to S&P/Case-Shiller. All the regions were down during the period, led by a 34 percent slump in Phoenix and a 33 percent slide in Las Vegas.
Prices fell as banks seized real estate from delinquent borrowers. President Obama said last week his new $275 billion housing program will help about 9 million homeowners lower monthly payments in a bid to keep new foreclosures in 2009 below last year’s all-time high of 2.7 million.
“As long as home prices are falling, the financial system and the economy will continue to unravel,” Mark Zandi, chief economist at Moody’s Economy.com, said in an interview. “It will cost millions of tax dollars to try to prevent additional foreclosures from coming on the market and gutting prices further, but it will cost millions more if we do nothing.”
The day before unveiling the housing plan, Obama signed into law a $787 billion recovery bill that includes tax relief, infrastructure spending and aid to distressed states aimed at creating or saving 3.5 million jobs.
Even with lending rates near record lows and the government moving to prop up housing, foreclosures this year may reach about 3.1 million, surpassing last year’s, said Zandi.
The drop in home values is contributing to the decline in spending because home equity was a major source of cash for purchases of expensive items like autos during the housing and credit booms.
Macy’s, the second-biggest U.S. department store, today said net income dropped 59 percent in the quarter ended Jan. 31, as sales at stores open at least a year dropped 7 percent. An even bigger decline in stockpiles during the period prevented profit from declining even more.
Home Depot, the largest home-improvement retailer, beat estimates after curbing costs by closing its Expo design chain and also holding down inventory.
Other merchants are still struggling. Target Corp., the second-largest discount chain, said fourth-quarter profit fell 41 percent after it cut prices over the holidays and set aside more money for unpaid credit-card balances. Target said last month it’s eliminating 9 percent of its headquarters workforce and suspending raises for executives.
“The customer’s very tentative,” J.C. Penney Co.’s Chief Executive Officer Myron Ullman said on a conference call with investors this month. “They’re buying what they need and they’re being very smart about how they spend their money.”
Bob Willis and Timothy R. Homan