House prices in the US have fallen by almost 23 per cent over a three-month period and a decline in American consumer confidence is seen as signalling the biggest drop in consumption to occur since 1974.
Wall Street economists described the data as "incredibly awful" and said that the likelihood was remote that the US Federal Reserve would raise interest rates this week. The numbers will be a blow to Washington,
which had hoped that this summer's $150 billion (£76 billion) tax rebate programme would lift the US economy out of the gloom. However, a combination of the housing recession, which shows no sign of abating, record petrol prices and rising food costs are conspiring to offset the effect of the fiscal stimulus package.
According to the S&P/Case-Shiller house price index, considered the most authoritative gauge of US property values, the price of the average American home fell by 1.4 per cent in April, from March, and tumbled by 22.8 per cent over a three-month period. However, the rate of the April decline was not as stark as previous monthly falls, which have been as high as 2 per cent. The index measures house prices in 20 metropolitan areas in the US. The April figures show that Miami and Phoenix were the worst- performing cities, both off 3 per cent.
At the same time, Washington published official figures measuring US consumer confidence in June. The data showed that Americans had the least confidence in their finances since records began in 1967. If borne out, Wall Street expects the lack of confidence to translate into a 3 per cent slide in overall consumption. Consumer demand is critical to the US economy, accounting for two thirds of activity.
The June consumer confidence index dropped to 50.4, from 58.1, well below the consensus forecast of 56.0.
Ian Shepherdson, US economist for High Frequency Economics, said: "This is incredibly awful. Even as some people spend their tax rebates — chain-store sales growth hit a nine-month high last week — the majority appear overwhelmed by the surge in gasoline and food prices, and the drop in stock and home prices. Talk of higher rates probably isn't helping, either. This is what's coming when the rebates are spent. Rate hike? You're kidding."
The Fed faces a dilemma as its rate- setting committee meets today. The central bank wants to keep rates low — they are 2 per cent — to help to stimulate a recovery, but is also anxious to contain inflation.
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