The mood among consumers hit the skids in November as gasoline prices soared and the housing market downturn threatened to ensnare more Americans.
A drop in weekly mortgage applications, signs of stress in the labor market and crude oil prices on the cusp of $100 per barrel threw up caution flags on the eve of the critical holiday spending rush.
The Reuters/University of Michigan consumer confidence reading for November was 76.1, down from 80.9 in October. Apart from the short-lived dip in sentiment that followed Hurricane Katrina in 2005, it was the weakest since 1992.
Assessments of current conditions and expectations both fell heavily in November.
For years, occasional declines in consumers' reported levels of confidence have often failed to trigger lower retail spending, but analysts sense that the two are finally coming together, to the detriment of U.S. economic growth.
"We still think recession will be averted this time around, but the risk is undoubtedly rising," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
U.S. share prices fell on the reports while Treasury yields remained at lower levels seen earlier. The benchmark 10-year note yield is below 4 percent for the first time since September 2005.
Bleak Friday on Tap?
"Black Friday," the day after Thursday's Thanksgiving holiday and the start of the traditional year-end spending spree, threatens to be Bleak Friday this time around.
"We see ongoing evidence that soaring gasoline prices are draining purchasing power for other goods," said economists at Action Economics.
So far, however, the labor market appears to be softening only slightly. Data on Wednesday showed the number of U.S. workers filing initial claims for jobless benefits was reported to have fallen by 11,000 in the week ended November 17, in line with expectations.
The previous week's claims were revised upward to 341,000, while continuing jobless claims rose by 7,000 to 2.566 million for the week ended Nov 10, the Department of Labor said.
The reading was the fifth figure at or above 329,000 in the last six weeks, pointing to a slight uptick in the underlying pace of layoffs, said Omair Sharif, economist at RBS Greenwich Capital in Greenwich, Connecticut.
Economists at Goldman Sachs said the jobless claims series would be closely watched by Federal Reserve policy-makers in the lead-up to the Dec 11 meeting on interest rates.
"In our view, the forecasts just released (on Tuesday) by the FOMC raise the indicators of unemployment to primary status among factors that could surprise them into additional rate cuts," they said.
Meanwhile, a composite index of ten leading economic indicators fell by a larger-than-expected 0.5 percent in October, the Conference Board said on Wednesday.
"Consumers worry about wages not keeping up with price pressures," said Ken Goldstein, labor economist at the privately owned group. "Where the economy is headed in the early months of 2008 is heavily dependent on perceptions about price."
Earlier this week Target, a popular shopping destination for the would-be upwardly mobile middle class, reported lower-than-expected third-quarter earnings.
Coffee mega-chain Starbucks, an informal "leading indicator" of the U.S. economy, recently rattled Wall Street with a dim outlook for 2008.
Mortgage Market Weak
U.S. mortgage applications fell on the week, with demand for both refinancing and home purchase falling, an industry group said on Wednesday.
The Mortgage Bankers Association's seasonally adjusted mortgage application index fell 3.6 percent to 681.7 in the week ended November 16.
Most signs point to weakening demand for housing, with buyers fearful of purchasing a fast depreciating asset, economists have said.
A report from the National Association of Realtors on Wednesday showed the median price for a U.S. single-family home slid 2 percent in the third quarter from a year ago, while sales of previously owned homes also fell in most states.
The ongoing credit crisis is also making it harder for many potential borrowers to get loans approved by more stringent lenders. The tightening of lending standards stretches beyond home mortgages to other big-ticket items such as autos.
"The level of mortgage applications remains relatively high. However, the biggest reason that applications have stayed elevated is that potential home buyers and refinancers are submitting multiple applications in order to secure financing," said Steven Wood, economist at Insight Economics in Danville, California.