U.S. Consumers Start the Year with a Boost of Confidence but Home Prices Continue to Fall

The Conference Board's measure of U.S. consumer confidence jumped 7.3
points in January to 60.6 from an upwardly revised 53.3 level in
December (initially reported as 52.5). Market expectations were for a
much more moderate increase in the index to 54.0. The labour market
differential (those saying jobs are "plentiful" less respondents
saying jobs are "hard to get") posted its best reading since May 2009,
improving to -38.2 from the prior month's -41.8 (previously reported
as -42.9).

The better than expected rise in consumer confidence in January
reflected an improvement in both in the "expectations" and the
"present situation" components. The expectations component rose to
80.3 from 72.3 in December, led by an improvement in the outlooks for
business conditions and employment. The present situation index rose
to its highest level since November 2008, increasing to 31.0 from 24.9
in December. Consumers' appraisal of the job market was somewhat more
positive than last month, with the "jobs hard to get" index declining
to 43.4 from 46.0 in December, its lowest level since January 2009,
and the "jobs plentiful" index increased to 5.2 from 4.2, its highest
level since May 2009. These numbers resulted in the employment
differential improving to -38.2 from -41.8 in December, the best
reading in this measure since May 2009.

While the jump in overall consumer confidence in January is an
encouraging start to the new year, today's report still indicates that
the level of confidence remains well below the pre-recession peak of
111.9. The persistently weak labour market conditions are a key factor
weighing on confidence, and with the unemployment rate expected to
improve only gradually, consumers' attitudes are not likely to change
significantly in the near future. Further adding to the subdued
consumer outlook is the evidence that suggests that any recovery in
the housing market is faltering. With a large portion of Americans
having their wealth tied to their homes, falling home prices have a
significant effect on household finances. The elevated unemployment
rate and lack of a sustained housing market rebound are among the main
reasons why we expect that the Fed will not make any changes to its
monetary policy stance at this week's meeting.

In a separate release this morning, November's S&P/Case-Shiller
20-City Composite measure of U.S. house prices fell for the fifth
straight month, although dropping by a smaller than expected 0.5% on a
seasonally-adjusted basis from October (market expectations were for a
0.8% decline). On a year-over-year basis, the pace of growth in the
unadjusted index decelerated for the sixth straight month and posted
the largest 12-month decline since December 2009, falling 1.6% in
November. The accompanying report noted that the housing market has
experienced an "unambiguous deceleration in home price returns" and
that a double-dip (defined as the index posting a new post-peak low)
"could be confirmed before the spring."
Source: ActionForex.Com