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Dec. 22, 2006

Weak housing market top concern of consumers

ANN ARBOR. Consumers anticipated that the pace of economic growth would remain sluggish during the year ahead due to persistent weakness in the housing market. "Consumers anticipate a slower pace of economic growth but no economy-wide downturn during 2007," according to Richard Curtin, the Director of the University of Michigan’s Survey of Consumers.

Although the overall level of consumer confidence remains positive, consumers have identified several areas of concern. "The top concerns of consumers involve the housing market. First, consumers arre apprehensive about how much the value of their homes may decline, and second, consumers are concerned about the loss of jobs due to the slowdown in construction and the negative impact on other jobs," noted Curtin.

Consumers will continue to be the engine of economic growth. "The consumer data indicate that despite declines in residential investment, inflation adjusted personal consumption expenditures will advance at a 3.0 percent rate of growth during the year ahead," Curtin said. The strength in consumption spending will propel the economy forward at a 2.5 percent growth rate in GDP during 2007, a slower but still positive pace of growth.

The Index of Consumer Sentiment was 91.7 in the December 2006 survey, within a half a point of the 92.1 in November and the 91.2 recorded last December. The small December decline was due to offsetting shifts, as consumers voiced more positive views about current economic conditions and slightly less positive views about future economic conditions. The Current Economic Conditions Index was 108.1 in December, up from 106.0 in November, but just below the 109.1 recorded last December. The Index of Consumer
Expectations, a closely watched component of the Index of Leading Economic Indicators, was 81.2 in December, between the 83.2 in November and 80.2 last December. Even at the lower December level, the Expectations Index is still at relatively favorable levels.

The highest proportion of consumers in the more than fifty years of the surveys have stressed that their
holiday purchases were contingent on the availability of price discounts. The repeated spikes in gas prices have
left consumers with more debt and less savings than ever before, with much greater financial stress expressed
by lower income households. Retailers heard and understood. To paraphrase a scene in "It's a Wonderful Life,"
each time you hear a bell ring, another retailer has just lowered their prices.

Although vehicle purchase plans remained at the most favorable levels recorded in 2006, fewer consumers mentioned that price discounts of the size that they had anticipated were now available.

Home buying attitudes slipped following the positive gains recorded during the past few months due to somewhat weaker views on current home prices. Other than last month, the number of consumers that mentioned low home prices was the highest in fifteen years.

"Consumers are still uncertain about how much home prices
will fall and therefore their reluctance to purchase a home has remained high," Curtin said. Although small gains
have been due to declines in mortgage rates, no sustained and substantial turnaround in the housing market is
expected until mid 2007.

Related Links:

Survey of Consumers

Institute for Social Research

Contact: Richard Curtin
Phone: (734) 763-5224

Related Categories: Insitute for Social Research