NEW YORK (Reuters) - Data on Tuesday underscored the fragility of the economic recovery, with consumer confidence rising but still weak and home prices falling again after gaining earlier in the year.
The reports reinforced the belief the Federal Reserve will embark on another round of monetary policy stimulus to support the economic recovery, possibly as soon as next week.
Consumer confidence rose slightly in October but remained near historically low levels as concerns about the labor market persisted.
The Conference Board, an industry group, said its index of consumer attitudes rose to 50.2 in October from a revised 48.6 in September.
The Federal Reserve, which has already injected $1.7 trillion into the economy by purchasing mortgage-related and government bonds, meets on November 2-3.
Another round of quantitative easing, dubbed ‘QE2’, is expected to focus on Treasury debt.
The labor sector — U.S. unemployment rate remains stubbornly high at 9.6 percent — is one of the primary reasons the housing market remains fragile.
President Barack Obama could lose control of Congress in U.S. mid-term elections on Tuesday due to voter anxiety over the jobs market and housing sector.
Prices of U.S. single-family homes fell for a second month in August, hovering around recent lows after the expiration of popular homebuyer tax credits, according to a Standard & Poor’s/Case-Shiller report on Tuesday.
The price drop is largely a payback from the tax credits, which induced gains earlier this year.
“At this point the big factor out there is the foreclosure situation and it certainly doesn’t look very good. We have a lot of excess supply to work through, a lot of potential foreclosures and what appears to be an increasing legal mess,” David M. Blitzer, chairman of the index committee at Standard & Poor’s, told Reuters Insider. “It’s going to take quite a while to get housing back on its feet.”
The housing market has been struggling since home buyer tax credits expired earlier this year. To take advantage of the tax credits, buyers had to sign purchase contracts by April 30. Contracts originally had to close by June 30, but that was extended by three months.
U.S. stocks were lower, with soft commodity prices and disappointing results from the steel sector weighing on materials stocks. The Standard & Poor’s 500 Index was down 0.25 percent
U.S. Treasury debt fell in price after a two-year note auction, while the U.S. dollar extended gains versus the euro.
Another report on Tuesday showed home price gains in August [ID:nWBT014211]. The U.S. Federal Housing Finance Agency home price index is calculated using purchase prices of houses financed by Fannie Mae and Freddie Mac.
Home prices in August reflected conditions before banks temporarily halted foreclosures due to questionable documentation. Home prices may benefit from fewer foreclosures in the mix, but any rise should prove to be temporary.
The housing market, however, remains highly vulnerable to setbacks and most economists believe a recovery will be elusive until the labor market improves.
Some hope for the U.S. economy came by way of several major U.S. companies on Tuesday.
Ford Motor Co posted a higher-than-expected quarterly profit on Tuesday and accelerated plans to cut debt and borrowing costs to bring the automaker closer to an investment-grade credit rating.
DuPont, the world’s fourth-largest chemical maker by revenue, reported a higher-than-forecast quarterly profit and boosted its 2010 earnings forecast above Wall Street’s expectations.
Additionally, three U.S. industrial companies posted better-than-expected profits on Tuesday and provided generally upbeat assessments of the global economic recovery, suggesting Europe and North America may finally be stabilizing.
The upbeat outlooks could serve to fuel arguments that the U.S. Federal Reserve may not need to pump more money into the financial system next week and might wait longer.
“I think it’s still possible that QE2 is not a done deal for November, even though the market has been trading as if it is,” said Brian Dolan, chief economist at Forex.com in Bedminster, New Jersey,
“This is one of the last bullets the Fed has in its gun and it’s going to be very reluctant to fire it unless circumstances are really dire,” he said. “It might be put off until the first quarter. I think the market has started to consider that this week.”
Nevertheless, an overwhelming majority of economists still see the need for economic stimulus and expect clarification next week.
Additional Reporting by Wanfeng Zhou, Ernest Scheyder and Steven Johnson in New York, Bernie Woodall and David Bailey in Detroit and James B. Kelleher in Chicago; Editing by Andrew Hay