Confidence among Americans dropped to the lowest level in 16 years on Tuesday and house prices fell the most on record, raising the risk that consumers will cut back on purchases after spending their tax rebates.
The Conference Board’s confidence index fell to 50.4 in June, lower than forecast, from 58.1 in May. Home prices in 20 cities dropped 15.3 percent in April from a year earlier, according to S&P/Case-Shiller, the most since the group began collecting data.
Consumers, whose spending accounts for more than two-thirds of gross domestic product, are being hurt by the housing slump, rising unemployment and higher food and fuel bills.
“We’ve seen this dive in confidence in the last two months at the same time these stimulus checks” have been mailed, said Chris Low, chief economist at FTN Financial in New York. “It tells me if we see this pop in spending, it’s not going to last.”
The confidence measure reached the lowest level since February 1992, when the economy was in the midst of the so-called “jobless recovery” following the 1990-1991 contraction.
Concern over jobs contributed to the erosion in confidence. The share of consumers who said jobs are plentiful fell to 14.1 percent from 16.1 percent last month. Those saying jobs are hard to get increased to 30.5 percent from 28.3 percent.
Buying plans over the next six months for automobiles, houses, appliances and vacations all declined.
Recent economic data “suggests we are on the brink” of a recession in the U.S., former Federal Reserve Chairman Alan Greenspan said Tuesday via satellite to a conference in Johannesburg, South Africa. The next year will be “a very sluggish period,” with a “highly volatile oil market,” he said.
While the Fed has pledged to combat any increase in inflation expectations, economists predict the central bank will keep its benchmark interest rate at 2 percent on Wednesday. They will also be reluctant to signal an imminent increase in borrowing costs.