Confidence in the economy ebbs

David Brancaccio Jan 31, 2012

Home is where the heart of the economy is.

If there’s any truth in that fractured aphorism, then our economy needs work. This morning we found out the S&P/Case-Shiller Index dropped 0.7 percent in November — more then economists had expected. The Case-Shiller measures the sale prices of single-family homes in 20 American cities.

Add to that another surprise for analysts: Consumer confidence fell in January after a couple up months. Pessimism about jobs + higher gas prices + decreasing home values = lower confidence. The outlook for the next six months was also down, according to a survey by the Conference Board, a business research group.

None of this fits well with the tapestry experts have been trying to weave that things are “slowly” on the upswing.

David Levy is chairman of the Jerome Levy Forecasting Center. He’s extremely bullish on the U.S economy long-term, but for 2012 he’s a bear, watching for signs of the U.S. possibly slipping back into recession.

Levy says there’s a difference from past recoveries where, “Once things started to pick up, consumers felt better, they’d start borrowing again.” Levy says consumers are still just struggling with debt. Even if they can get credit, they are more inclined to squirrel away any extra money.

At the core again is jobs. Levy says consumers can’t continue to spend faster than their incomes grow. Getting more people back to work might help consumers feel a little bit more comfortable. We’ll know more about that in the next few days as we get the monthly ADP payroll report tomorrow and the January unemployment report on Friday.

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