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April Consumer Confidence And February Home Prices

Consumer confidence faltered, but one good employment report could turn those frowns upside down.


Key Data: Confidence: down 6.2 points/ National Home Prices (Monthly): +0.4%; Year-over-Year: +4.2%

In a Nutshell: "Consumer confidence faltered, but one good employment report could turn those frowns upside down."

What it Means: Maybe the monthly employment report really matters to people. Job openings and wages are rising, but people apparently think conditions worsened in April. The Conference Board's Consumer Confidence Index dropped sharply, wiping out the solid gain posted in March. Interestingly, the view of the labor market deteriorated. Was that the result of respondents actually having a harder time finding jobs or just reacting to the weaker March jobs report? I just don't know. That said, theperceptions of the job situation weakened, not just for current conditions, but for future conditions as well. People are also less confident in their incomes growing. That does not bode well for future spending.

Housing prices continue on their upward trend. The national S&P/Case-Shiller Home Price index rose moderately in April. When adjusted for seasonality, every one of the 20 representative metropolitan areas posted a gain. People have become pretty high on property in Denver (pardon the joke), and prices in that city rose by 10% over the year. The next greatest increase was in San Francisco (9.8%), which often leads the way in home price appreciation.

The likelihood is that housing prices will continue their solid upward rise as supply is low and the rental market remains strong. Homeownership rates continue to filter downward, increasing demand in that segment of the market, and prices rose at about the same pace as the homeowner housing market. That could attract more investors into the housing market, adding to demand even as builders remain cautious in their willingness to bring new product onto the market.

Markets and Fed Policy Implications: The FOMC begins its two-day meeting today, and we will get a statement but no press conference tomorrow. Today's data only add to the belief that the Committee will say that it can remain patient. They will probably comment about the need to see better and more sustained economic growth before any rate hike occurs. For those who don't want to do anything for an extended period (notice how I got in both extended period and patience?), the recent reports provide all the cover needed. We do not get the employment report this Friday, even though it is the first Friday of the month. That helps the Fed's doves, as they don't want to say on Wednesday that the labor market slowed and then find out on Friday that it was actually just a temporary blip. As for markets, the economy is not showing any indication it is accelerating sharply, so those investors who want to put a rate hike out of their minds will likely continue to do so.


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