US consumer confidence plunged to a new low in January, confounding analysts who believed the new year and a new president would lighten some of the gloom and signal an imminent easing of the recession in the world's largest economy.
As members of the Federal Reserve's open market committee (FOMC) assembled for a two-day meeting to set interest rates and discuss other ways to tackle the credit crisis, the latest economic indicators provided only a more dire backdrop.
The Case-Shiller house price index, the most closely watched measure of the housing market where the credit crisis and the recession began, showed valuations were still plunging at a record speed across the country. And a new report showed the unemployment rate rising in all 50 states, and topping 10 per cent in two – Detroit, centre of the troubled car industry, and Rhode Island.
"Consumers remain quite pessimistic about the state of the economy," said Lynn Franco, director of The Conference Board's research centre, which conducts the monthly sentiment survey. "Until we begin to see considerable improvements in the expectations index, we can't say the worst of times are behind us."
Economists had predicted a small uptick in confidence in January, but instead the index fell from a revised 38.6 in December to 37.7. Its "expectations index", which measures how consumers rate the future for the economy, dropped to 43 from 44.2 the previous month.
The pessimism reflects snowballing job losses and increasing job insecurity. On Monday, US companies announced more than 50,000 lay-offs. The Labour department said last week the countrywide unemployment rate had reached 7.2 per cent, and in a detailed analysis yesterday it revealed six states have a rate above 9 per cent.
The gloom is leading Americans to put off house purchases, even where they can find mortgages from the battered banking industry. The Case-Shiller survey showed home prices plunged a record 18.2 per cent in November from a year earlier. They were down 2.2 per cent from the previous month.
David Blitzer, chairman of the index committee at Standard & Poor's, which publishes the Case-Shiller figures, said the market was still in "freefall", having declined for 28 straight months.
The FOMC has few easy options for reviving the housing market, having reduced its key interest rate target to near-zero. In a historic meeting last month, it set a target range for the federal funds rate of 0-0.25 per cent, but recognised rates elsewhere in the markets were not coming down. Instead it promised a range of other market interventions to ease credit for businesses and home buyers, and said it would print money if necessary to tackle the recession.
It is expected to update the market this afternoon. This week's meeting is the first to be attended by William Dudley, who has been confirmed as the new head of the New York Federal Reserve.Reuse content