UBS: Pause in consumer confidence downtrend?

Mon. July 28, 2008; Posted: 10:48 PM

(RTTNews) - The Conference Board confidence index likely reversed a bit of its recent weakening in July, consistent with the pattern in other sentiment measures, say the economists at UBS. The rise we forecast represents only a slight retracement of recent weakness. The June reading was the lowest since January 1992. The level for the expectations component, which correlates more closely with growth in real consumer spending than the overall index, was the lowest on record. (The series began in February 1967.) We do not believe the trend is improving significantly yet.

Store sales measures for the week of July 26 will be reported. Despite the weakness in consumer confidence, store sales measures have accelerated, likely temporarily helped by tax rebates. Also, the S&P/Case Shiller home price measures likely continued to decline in May, reflecting turmoil in the mortgage market, high inventories, weak home sales, and rising foreclosures. Like other regional survey measures reported for July, the current activity index in the Dallas Fed survey showed ongoing weakness, falling to -27.4 from -24.1. The prices index slipped slightly, although at 65.4 after 72.2, it remained at a high level. The national manufacturing ISM index for July is due Friday.

In its Mid-Session Review, the Bush Administration announced a $389B deficit estimate for FY08 (2.7% of GDP), below the $410B (2.9% of GDP) projection made in February. For FY09, the Administration raised the deficit forecast to $482B (3.3% of GDP) from $407B as of February. Finally, the housing bill attempts to help at-risk mortgage holders refinance into 30-year fixed rate loans guaranteed by the FHA. It also raises the limit on conforming loans guaranteed by Fannie and Freddie (to $625,500 from $417,000). Other details include $4B for states to buy and rehab foreclosed properties, and the authorization to the Treasury Department to offer a credit line to Fannie and Freddie over the next year and a half. Tax provisions included a small tax credit (up to $7,500) for first-time homebuyers. However, the tax break is only a loan: it must be paid back over 15 years.

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