An anemic economy, sinking home values and soaring gas prices pushed consumer confidence to its lowest level since 1992, the U.S. Confidence Board reported last week Many news outlets jumped on the news, spinning it to suggest the economy is spiraling downward like an unimpeded helix.
But maybe things really aren't all that dire. Gross domestic product – the output of goods and services produced by labor and property – increased at an annual rate of 1.0% in the first quarter of 2008, according to final estimates released by the Bureau of Economic Analysis. In comparison, GDP increased only 0.6% in the fourth quarter of 2007. The data suggest economic growth is accelerating.
Perhaps consumers would feel more upbeat if they knew that existing home sales are stabilizing, with sales rising 2% in May from April to a seasonally adjusted annual rate of 4.99 million units. At the same time, inventory of existing homes fell 1.4% to 4.49 million units in May, which represents a 10.8-month supply at the current sales pace, down from a 11.2-month supply in April.
The Federal Reserve appeared upbeat by switching its focus to abating inflation from inflating the economy. But although the Fed said it expects inflation to moderate "later this year,” it admitted that it is concerned over “continued increases in the prices of energy and other commodities.”
Credit markets didn't appear too terribly concerned about inflation; mortgage rates finally held firm for a week, with the prime 30-year fixed-rate mortgage averaging 6.62%, the prime 15-year fixed-rate mortgage averaging 6.19%, and the prime 5/1 adjustable-rate mortgage averaging 6.28%, according to Bankrate.com's weekly survey.
Eric P. Egeland