Consumer, Housing Decline Boosts Rate-Cut Hopes


U.S. consumer confidence fell more sharply than expected in September while the pace of
existing home sales swooned in August, according to reports released Tuesday that supported the view that the Federal Reserve would soon cut benchmark interest rates again.

Cash Register
Paul Sakuma

Consumer confidence fell to its lowest in nearly two years on growing concerns about jobs and financial market turmoil, the Conference Board said.

A separate report from the National Association of Realtors said that the pace of U.S. existing home sales, including condominiums, fell a sharp 4.3 percent in August to a 5.5 million-unit annual rate, the slowest since August 2002.

Single-family home inventories rose 0.4 percent to 4.58 million units, a 10-month supply and the highest in 18 years.

"Real Shocker"

"It's the supply that's the real shocker," said Josh Stiles, senior bond strategist at IDEAglobal in New York. "That is just going to be a weight on prices and activity."

Economists polled by Reuters had expected home resales to fall to a 5.49 million-unit pace from the 5.75 million-unit rate initially reported for July.

With home sales weak and nonfarm U.S. payrolls contracting in August, the Conference Board's index of consumer sentiment fell to 99.8 in September, the lowest since November 2005 and
down from 105.6 in August. The median forecast of economists polled by Reuters was for a slip to 104.0.

August's figure was revised upward from 105.0.

Short-term interest rate futures, which measure market expectations for Fed monetary policy, rose strongly after the data. The market showed implied chances that the central bank would cut rates by one-quarter point at its next policy meeting on Oct. 30-31 reached 90 percent, the highest in a week. That compares with 72 percent overnight.

The Fed slashed its overnight federal funds target rate to 4.75 percent from 5.25 percent a week ago, on Sept. 18.

Home Prices Drop

A third report showed a drop in prices of existing U.S. single-family homes accelerated in July and that the annual decline in the 10 largest cities was the sharpest since 1991.

Standard & Poor's/Case Shiller composite month-over-month index for 10 metropolitan areas declined 0.6 percent in July to 215.94 for a 4.5 percent year-over-year drop. The index had
fallen 0.5 percent in July from June. The annual decline in the 10-city index was the sharpest since July 1991, when the economy was emerging from recession, S&P said.

Prices for existing U.S. single-family homes in 20 major U.S. metropolitan areas dropped 0.4 percent in July from June, and 3.9 percent from a year earlier. The 20-city index also had
fallen 0.4 percent in July from June.

News of the home-price decline came after two mixed reports on chain store sales in mid-September.

For the week ended Sept. 22, Redbook Research said, same-store sales were up 1.6 percent over the year-ago week in 2006 and that sales rose 0.5 percent from the previous week.

The International Council of Shopping Centers and UBS Securities seasonally adjusted weekly index on U.S. chain-store retail sales fell 1.0 percent from the previous week but was up
2.4 percent from the same week a year ago.

Lennar Corp, one of the largest U.S. home builders, posted a wider-than-expected loss in the third quarter, blaming drops in both existing and new home prices.