As a huge snowstorm rolls up the east coast of the US, the outlook for the world's largest economy is similarly frosty.
US economic outlook suggests a big chill
As ahuge snowstorm rolls up the east coast of the US, the outlook for the world's largest economy is similarly frosty. This month, the Dow Jones Industrial Index is up 5 per cent, the strongest performance since 1991, but investors will be watching two key economic indicators for the US due this week: house prices; and consumer confidence.
A recent Bloomberg survey of economists showed they expected home prices to have dropped slightly in October compared with the same period last year, which would be the first year-on-year decline since January.
The primary drag on house prices is an expected wave of foreclosures from owners unable to pay their mortgages, in part because of high unemployment. On the flip side, a strong stock market and better jobs figures of late are boosting sentiment. The economists surveyed by Bloomberg said they expected consumer confidence to rise to a seven-year high this month.
"The [housing] inventory overhang is so big, with foreclosures looming, it'll take five years to absorb the supply," said Paul Ballew, the chief economist at Nationwide Mutual Insurance. "The consumer is feeling better although there is still a high level of caution and anxiety." Other reports this month show the housing market remains stuck near recession levels even as the broader economy is recovering. Housing construction permits fell last month to the third-lowest level on record, while construction starts rose for the first time in three months.
The International Council of Shopping Centres on December 14 revised its holiday-season sales forecast up by half a percentage point, while Carnival, the world's biggest cruise-line operator, last week forecast that earnings for the 2011 fiscal year would rise as ticket prices strengthened.
"Booking trends have continued to improve for both our North American and European brands, particularly for our peak summer season," Micky Arison, Carnival's chief executive, said on Tuesday.
Economists in the past two weeks have boosted projections for fourth-quarter growth, reflecting the pickup in consumer spending and passage of a US$858 billion bill extending Bush-era tax cuts for two years.
* with Bloomberg