Consumer confidence is pushing up ever so slightly. But it may not be up enough to overcome persistent weakness in the housing market, which thrives when potential buyers have enough assurance to sign a sales contract. (See Housing Market Shows Continued Weakness and Low Confidence Stalls Housing Market.)
Consumer confidence rebounded in April from a large drop in March, as inflation expectations somewhat eased, according to data released yesterday by the Conference Board. The confidence index hit 65.4 in April, compared with an upwardly revised 63.8 in March. At the same time, consumers' 12-month inflation expectations declined to 6.3% from 6.7% in March.
Lynn Franco, director of the Conference Board's consumer research center, noted that "consumers' short-term outlook improved slightly," even though "confidence remains weak."
The Conference Board's index compares fluctuations in confidence, with a reading of 100 for the base year of 1985. When the economy is healthy, the confidence index usually ranges from 90 to 100. So while 65.4 is better than 63.8, no one is doing a happy dance about the numbers.
Housing contributes to gross domestic product through private residential investment and consumption spending on housing services. Residential investment includes construction of new single family and multifamily structures, residential remodeling, production of manufactured homes, and brokers' fees. Consumption spending on housing services includes gross rents (which include utilities) paid by renters; owners' imputed rent (an estimate of how much it would cost to rent owner-occupied units); and utility payments.
According to the NAHB, residential investment historically averages up to 5% of GDP, while housing services have averaged between 12% and 13%. If you add up the numbers, housing represents as much as 18% of GDP, the organization estimates.
Usually, residential investment is a major contributor to GDP growth in the early stages of a recovery. But it's not, this time, because of the huge glut of existing vacant homes.
To understand the impact housing has on the economy, just think back 10 years. In those fearful days after 9/11, as businesses crumbled and concerns about the future soared uncontrollably, the housing market remained strong.
Home became synonymous with safety. They were places of refuge in uncertain times, private castles protected from the turbulent sands of uncertainty.
It was a powerful image that helped persuade everyone it was a moral imperative to own a home. And I guess that was the problem. Not everyone could afford a home -- and many realized too late that they shouldn't have bought one. Or, at least, one that wasn't so luxurious, cavernous, or expensive.
Reality eventually caught up with the market. The bottom fell out, and housing began a dizzying descent down a rabbit hole. The question is, have we really hit bottom? Or have we got farther to fall?