With the Stock market recovering anywhere from 50% to 75% of its 2008 losses, depending on what index you are looking at, and analysts declaring a bottom is in for equities and the worst of the subprime fallout has hit, one may expect some number to back those statements up.
Unfortunately none were forthcoming on the eve of the Fed’s announcement on interest rates. Tuesday the S&P Case-Shiller Home Price Index for February showed continued weakness in the housing sector.
“There is no sign of a bottom in the numbers,” said David M. Blitzer, Chairman of the Index Committee in a release. “Prices of single family homes continue to drop across the nation,” Blitzer added.
The index showed all 20 metropolitan areas in the index dropped. The 20-city composite dropped by 12.7% year over year and the 10-city composite dropped 13.6%.
In addition to the Case-Shiller numbers, the Conference Board reported that consumer confidence continues to retreat. The April consumer confidence index dropped to 62.3, down from 65.9 in March.
Lynn Franco, Director of The Conference Board Consumer Research Center said in a release, “This month’s decline in Consumer Confidence was the result of yet another sharp decline in the Present Situation Index. This continued weakening suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further.”
With the economy seemingly drifting into recession, a consensus is building that today’s expected 25 basis point cut by the Fed will be the last. In fact Fed Fund futures traded at the Chicago Board of Trade indicates that the benchmark short-term interest rate will begin to move higher by yearend.
Today’s Gross Domestic Product report (up 0.6%) has been dismissed in many sectors as not reflecting reality. First inventory building accounted for 0.8% of the growth, which indicates that we are in recession and increases in government spending account for another 0.4% of the quarterly figure. Add that the government insists on using core inflation in its adjustments and you can picture where we really are.
Unless the Fed surprises us later today, don’t expect much action until the minutes of their deliberations are released. Even if they do plan on pausing after today, that plan will be tested if the numbers continue to go south.