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ECONOMIC UPDATE
Despite sluggish economic activity, consumer sentiment, as measured by the
Conference Board Consumer Confidence Index, posted an increase for the
month of April, at 39.2, up from 26.9 in March. 1 This increase is based on
consumer’s improvement in their own short-term outlook and belief that the
economy is near a bottom. While this increase in consumer confidence is not
commensurate with strong economic growth as seen historically, the
improvement does provide a more optimistic view about the future of the
economy. Consumer optimism may be due in part to a continual increase in
housing affordability over the past year. Pending home sales, a forwardlooking
indicator, increased 3.2% for the month of March and was 1.1%
higher than levels seen in March 2008. Momentum in the housing market
will take time to percolate through the country, however, as first time home
buyers are taking advantage of an $8,000 tax credit, favorable housing
affordability levels, and historic low interest rates. Mortgage rates averaged
approximately 4.8%-5.25% for a 30-year fixed mortgage since January. The
National Association of Realtors Housing Affordability Index remained near
record highs, as the index was 166.7 in March versus 135.9 one-year ago. 2
The Federal Open Market Committee (FOMC) did not change interest rates
at the most recent meeting on April 28-29, as the target range for the federal
funds rate remained between 0 to 0.25%. 3 The FOMC expects that economic
activity likely will remain weak and expects inflation will remain subdued
based on data such as household spending, job losses, tight credit and weak
sales prospects. 4 Personal income fell 0.3% in March and correspondingly,
personal consumption expenditures fell 0.2% simultaneously as
unemployment continued to steadily increase. 5 The unemployment level was
8.9% for April and since the recession started in December 2007, the U.S.
lost over 5.7 million jobs. 6 U.S. retail and food services sales fell 1.1% in
March and were 9.4% lower than the March 2008 level, due to lower auto and
gasoline sales. 7
Trepidation among investors started to ease with incremental positive news;
however, a recovery is likely to be slow and uncertain. Consumer stress
throughout the recession intensified with increasing unemployment as
consumers remain defensive, increase personal savings, and delay large luxury
purchases. While consumer sentiment has incrementally improved, sustained
economic development has not been realized. Low mortgage rates are critical
in aiding the recovery of the U.S. economy; however, the re-financing wave
and first time homebuyer surge could be threatened if Treasury yields
continue to rise and put upward pressure on mortgage rates.
1 The Conference Board. Information available from http://www.conference-board.org. 28 April 2009.
2 National Association of Realtors. Information available from http://www.realtor.org. Accessed 11 May
2009.
3 Board of Governors of the Federal Reserve System. Information available from http://
www.federalreserve.gov. Accessed 11 May 2009.
4 Ibid.
5 Bureau of Economic Analysis. Information available from http://www.bea.gov. 30 April 2009.
6 Bureau of Labor Statistics. Information available from http://www.bls.gov. Accessed on 11 May 2009.
7 U.S. Census Bureau. Information available from http://www.census.gov. 14 April 2009.
information@feg.com
Page 8
Christina M. Sunderman
Research Analyst
APRIL 2009
“Momentum in the
housing market will take
time to percolate
through the country.”
© 2009 Fund Evaluation Group, LLC