US Consumer Confidence Deteriorated in March, Existing Home Prices Started 2011 on a Bad Note

Location: Toronto
Author: RBC Financial Group Economics Department
Date: Wednesday, March 30, 2011

03/29/11 - The Conference Board’s measure of U.S. consumer confidence dropped 8.6 points in March 2011 to 63.4 from February’s surprisingly strong level of 72.0 (initially reported as 70.4). Market expectations were for a more moderate decline in the index to 65.0. The labour market differential (those saying jobs are “plentiful” less respondents saying jobs are “hard to get”) deteriorated to -40.2 from the prior month’s -39.5 (previously reported as -40.8).

The worse than expected decline in consumer confidence in March reflected a sharp deterioration in the “expectations” component, which plunged to 81.1 from 97.5 in February, its lowest level in five months. The decrease was led by a worsening in the outlooks for business conditions and employment. As well, the report noted that consumer inflation expectations jumped to their highest level since October 2008, while income expectations declined, “a combination that will likely impact spending decisions.” On a more positive note, the “present situation” component posted its sixth consecutive monthly increase improving to 36.9 from 33.8 in February. Consumers’ appraisal of business conditions was more positive than the previous month, while the view of job market was less favourable, with the “jobs hard to get” index edging higher to 44.6 from 44.4 in February and the “jobs plentiful” index decreasing to 4.4 from 4.9. This resulted in the employment differential deteriorating to -40.2 from -39.5 in February.

Despite the monthly decline, the underlying upward trend in consumer confidence in the US that has been in place since September 2010 remains fairly entrenched as the three-month moving average held at its highest level since April 2008. Weak labour market conditions, however, continue to weigh on confidence as evidenced by the reported labour market differential remaining in deep deficit. Furthermore, continued weakness in the housing market, political turmoil in the Middle-East and North Africa, and the natural disasters in Japan all likely weighed on consumer confidence in the month. With the unemployment rate expected to remain elevated and housing activity not expected to pickup significantly, we expect that the Fed will not make any changes to its monetary policy stance in the near term.

In a separate release this morning, January’s S&P/Case-Shiller 20-City Composite measure of U.S. house prices fell for the seventh straight month, although dropping by a smaller than expected 0.2% on a seasonally-adjusted basis from December 2010 (market expectations were for a 0.45% decline). The monthly decline brings the index within one point of the recessionary low seen in May 2009, while 11 metropolitan areas included in the measure dipped below the troughs seen during the recession. On a year-over-year basis, the pace of decline in the unadjusted index rose for the fourth straight month, falling 3.1% compared to the 2.4% drop seen in December. This represents the largest 12-month decline since December 2009 when the index posted an equal-sized 3.1% drop.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

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