WASHINGTON -- The steepest plunge in U.S. home prices in at least two decades suggests it's too early to conclude the United States has averted a recession.
In recent weeks, some economists have suggested the United States might escape a full-blown recession because the economy is still growing.
But in the first quarter, U.S. home prices fell at an annual rate of 14.1 per cent - the largest decline in the 20-year history of the closely watched Standard & Poor's/Case-Shiller national home price index.
The Case-Shiller report, coupled with a report showing the weakest consumer confidence since 1992, suggests the two greatest threats to the world's largest economy are flashing warning signs of trouble ahead: real estate and consumers.
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Consumer confidence plunged to its lowest level in 16 years this month as Americans fret about rising gasoline prices and the dismal housing market, the U.S. Conference Board reported yesterday.
And Lynn Franco, the board's director of research, said there is "little likelihood of a turnaround" in the months ahead.
The overall index fell to its lowest level since October, 1992, declining to 57.2 from 62.8 in April. That's second lowest ever recorded; the all-time low was in December, 1973.
In the housing report, only one city, managed to eek out a gain - Charlotte, N.C., at a meagre 0.8 per cent, according to the report released yesterday.
Prices in 13 of the 20 markets that make up the index fell by double-digits, paced by steep declines Las Vegas (down 25.9 per cent from last year), Miami (down 24.6 per cent), Phoenix (down 23 per cent) and Los Angeles (down 21.7 per cent).
There are "very few silver linings" in the numbers, acknowledged David Blitzer, chairman of the index committee.
Americans reported they're more worried than ever about inflation. They're also having a harder time finding work and are less likely to make major purchases, such as a homes or cars, according to the Conference Board.
At $4 (U.S.) per gallon, the price of gasoline has breached another psychological threshold, making consumers acutely aware of inflationary pressures.
"Oil prices are taking their toll on the consumer, and consumer attitudes reflect an ugly stagflationary mix," said John Ryding, chief U.S. economist at Bear Stearns & Co. Inc.
Merrill Lynch economist David Rosenberg said the U.S. economy is heading into its "most challenging period" since the recession of 1973-75 as consumers endure rising food and energy prices, combined with falling house and stock wealth.
"The [baby] boomer population is not going to be providing the cushion for overall consumption that it did in the past three recessions," he said in a note to clients.
This all comes at time when many Americans are already weighed down by high debt levels, low savings, tight cash flow and weak access to new credit.
Former U.S. Federal Reserve Board chairman Alan Greenspan said the probability of a recession is still better than 50 per cent. Speaking to the Financial Times newspaper, Mr. Greenspan added, however, that the chance of severe recession was ebbing.
Mr. Greenspan added that the deflation in house prices still has a way to go. He predicted house prices would fall another 10 per cent, bringing the total average decline to 25 per cent from the peak of the housing market in 2006.
And that, he suggested, means that the credit crisis still has a way to go.
A recession is typically, though not always, marked by two consecutive quarters of economic contraction. It also is marked by falling incomes, employment, industrial production and retail sales. So far, the economy has continued to grow in both the final quarter of 2007 and the first quarter of this year.
Some parts of the United States, and some industries, may already be in recession. Steve Cochrane, an economist at Moody's Economy.com, said nearly the entire Midwest and South are either in recession, or very near recession. In all, 11 states are already in recession, he said.
One pocket of the country - a band of Plains states from Texas to the Canadian border - is still growing, buoyed by surging commodities prices are keeping the economy booming, Mr. Cochrane said.
In one positive sign, the U.S. Commerce Department reported that sales of newly built single-family homes rose in April for the first time in six months, while the inventory of unsold new homes declined for the 12th straight month.
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