U.S. consumer woes overshadow housing cheer

NEW YORK Tue Sep 29, 2009 6:44pm EDT

1 of 2. A sold sign hangs in front of a house in Dallas, Texas, September 24, 2009.

Credit: Reuters/Jessica Rinaldi

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NEW YORK (Reuters) - U.S. house prices rose for a third month in July, but consumer confidence fell unexpectedly in September as the worst job market in 26 years fueled worries about personal finances, private reports showed on Tuesday.

The data indicates the economic rebound is still in its early days following the worst recession in decades, and it could be a long time before consumers contribute to growth.

Despite improvements elsewhere in the economy and a roaring stock market rally since March, the weakness of the consumer sector bodes ill for the year-end, traditionally a period of heavy shopping and spending.

"Companies haven't started to hire yet, which is going to weigh on confidence," said Sean Simko, fixed income portfolio manager at SEI in Oaks, Pennsylvania.

"Offsetting that is the positive move in the equity market. But in the end, as individuals feel under pressure from the labor market, you will have confidence lower than where it needs to be to bolster the economy."

Consumers' job prospects might not improve anytime soon, judging by the plans of senior managers. U.S. chief executives are not ready to step up hiring or capital spending, according to a Business Roundtable survey.

It said 40 percent expect to cut U.S. jobs over the next six months, compared with 13 percent who expect to add them.

Stocks were lower after turning negative following the weaker-than-expected consumer confidence report. U.S. government bonds, which are investors' favorite safe haven during weak economic times, pared early losses.

CONFIDENCE GAME

The Conference Board, an industry group, said its index of consumer attitudes fell to 53.1 in September, versus a revised 54.5 in August and expectations of a rise to 57.0.

Reflecting Americans' worries about employment prospects, the Conference Board's index measuring jobs "hard to get" rose to 47.0 from 44.3.

At the other end of the scale, the gauge of "jobs plentiful" fell to 3.4 from 4.3. That was the lowest since February 1983 and ties in with Labor Department data showing the U.S. unemployment rate was at a 26-year high of 9.7 percent in August.

"While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes," said Lynn Franco, director of the Conference Board Consumer Research Center.

"With the holiday season quickly approaching, this is not very encouraging news."

The poor outlook overall led consumers to evaluate their present situation as the worst since March. The present situation gauge fell to 22.7 from 25.4.

In a bit of good news for the Federal Reserve, which has pumped easy money into the financial system in an effort to revive the economy, one-year inflation expectations fell to 5.2 percent from 5.4 percent in August.

September's inflation expectations were the lowest since October 2007. Some investors have worried that the Fed's recovery efforts will ultimately spark inflation.

IN THE HOUSE

The S&P/Case-Shiller composite index of house prices in 20 metropolitan areas rose 1.6 percent in July from June, more than triple the estimate of a 0.5 percent rise found in a Reuters poll. This index rose 1.4 percent the previous month.

The 10-city index gained 1.7 percent in July after a 1.4 percent rise in June.

Housing was at the epicenter of the financial crisis that pushed last year's mild recession into deep a downturn, and massive foreclosures have heaped pressure on consumers.

"These figures continue to support an indication of stabilization in national real estate values, but we do need to be cautious in coming months to assess whether the housing market will weather the expiration of the Federal First-Time Buyer's Tax Credit in November, anticipated higher unemployment rates and a possible increase in foreclosures," David Blitzer, chairman of the index committee at S&P, said in a statement.

A first-time buyer credit of $8,000, which ends November 30, has jump-started housing activity this year. But there are concerns about the impact when this incentive disappears.

The monthly price increases helped slow the annual rates of decline but home prices were still down 12.8 percent in the 10-city index and 13.3 percent lower in the 20-city index.

Meanwhile, Fannie Mae, the largest provider of funding for U.S. home mortgages, said delinquencies on loans it guarantees accelerated.

(Additional reporting by John Parry; Editing by Dan Grebler)

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