US consumers keep tight hold on their wallets

Ben Southwood
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US CONSUMER confidence collapsed in August, according to data released by the Conference Board, just as the Richmond Fed said decline in the manufacturing industry slowed down in the same month.

Consumer confidence was at its worst level for nine months, the Conference Board’s index showed, dropping to 60.6, down from 65.4 in July and a pre-crisis peak of 115.

The random survey found that just 15.2 per cent rated the current business conditions as good, while 34.4 per cent thought the climate was bad. Just seven per cent thought jobs were plentiful – compared to 40.7 per cent who claimed jobs were hard to get.

Analysts suggested that poor consumer data should add to the case for renewed Federal Reserve interventionism. “Although…confidence has not been a very reliable leading indicator of actual consumption, the drop in August is nonetheless one more reason for the Fed to act boldly,” said Paul Dales at Capital Economics.

This came as manufacturing activity continued to decline, according to the Richmond Fed’s survey of the central Atlantic region, albeit at a slower rate.

The index hit -9 in August, compared to -17 in July, an improvement that together with the figures for shipments and new orders indicates slower decline. However, the sub-index for jobs was down six points at -5.

House prices looked like they were recovering somewhat from their second slump, with the headline Case-Shiller home price index showing that prices in the second quarter of 2012 were 1.2 per cent higher than the previous three months.

While warning of headwinds in slow growth, high unemployment, restrictive credit and 1.3m homes in the foreclosure “pipeline”, Ed Stansfield at Capital Economics suggested that US housing could yet have bottomed out, ready for a recovery.