Foreclosures Rise and Consumer Confidence Dips

The American economy is caught in a tailspin. Unemployment is at its peak and latest foreclosures are at an all time high. Subsequently, consumer sentiment has hit a low.

The Consumer Confidence Index (CCI) has slipped to 49.3. It is down from the May figure of 54.8.

The plunge happened at a time when the housing market is at an all time low. Foreclosures have increased in the first quarter when compared to the last quarter of 2008. The main reason behind plunging consumer confidence is lack of job security. The Labor department data shows that unemployment has seen a steady climb.

Mark Vitner, senior economist at Wachovia, says that consumers are deliberately slow on purchases because they are making a careful assessment of their financial position and the economy. They feel that the worst is not yet over.

Consumer spending makes up for a large portion of the economic activity in the US. Hence, investors keep a careful watch on this. Even the Dow Jones industrials reacted in a negative manner when a report highlighting the consumer confidence was published.

The Conference Board Consumer Research Center director Lynn Franco says the economic situation may not be as grim as earlier this year but it will be quite sometime before it recovers completely. Consumer confidence too has risen from the low of 25.3 but it is much below the level that is considered healthy. A reading of 90 and above means that the going is good while above 100 means growth is strong.

Economists say that consumer confidence will remain steady at 55. The CCI had surged in April and May. As if on cue the stores started giving heavy discounts to push up sales and reduce stock. However, sales did not improve.

The chief economist at IHS Global Insight, Brian Bethune said the confidence levels will stay within the 60-mark. It may improve slightly but there will not be any significant improvement till 2010. The fundamentals are still very weak, he says.

What is standing in the way of economic growth is the rising number of foreclosures. Many are running late on payment of foreclosures and the number of people who are at least 60 days behind schedule has jumped significantly. It is not only the sub-prime borrowers who are defaulting on payments. The prime lenders too are falling on payments behind as unemployment rises. The situation will improve only when more jobs are created.