Consumer sentiment lifts, home sales drop

12/24/2008

WASHINGTON - U.S. existing home sales fell by a record amount last month as the recession picked up pace, although a collapse in gasoline prices gave consumer sentiment a rare lift, reports released yesterday showed.

The overall tenor of the reports sent stocks down. The Dow Jones industrial average finished lower for the fifth straight day, falling 100.28 points to 8,419.49. Broader indexes also declined. The Standard & Poor's 500 index fell 8.47 to 863.16, and the Nasdaq composite index slid 10.81 to 1,521.54.

The solitary good news came from the Reuters/University of Michigan Surveys of Consumers, which rose to 60.1 in December from November's reading of 55.3. Researchers for the survey attributed the rise to lower fuel and retail prices.

However, "absent the gain due to unusually steep pre-holiday price discounts, the sentiment index would be virtually unchanged," the report said. "The personal financial situation of consumers remains bleak, with the majority reporting that their finances had worsened during the past year."

Housing is at the heart of the problem. The National Association of Realtors reported that the pace of existing-home sales plunged a record 8.6 percent in November and prices posted a record year-over-year decline of 13.2 percent.

The month's decline, the fifth consecutively, sent the median price to $181,300. The drop was the largest since the current data series began in 1968 and probably was the largest since the Great Depression, Lawrence Yun, the association's chief economist, told reporters.

A separate report from the U.S. Commerce Department showed that sales of new homes retreated at a 2.9 percent annual pace.

Meanwhile, the department reported that its final calculation of the gross domestic product for the July-September quarter showed a decline at an annual rate of 0.5 percent, the same as reported late last month. The initial report on the third-quarter GDD, released in late October, showed a decline at a 0.3 percent annual rate.

The quarter's drop in GDP, the broadest measure of economic health, followed a 2.8 percent increase in the spring, a period that was boosted by the federal government's distribution of millions of economic stimulus payments.

Many economists think the current quarter could mark the low point of the recession that began a year ago. Some economists believe the economy's decline in the October-December period could be as large as 6 percent. That would be the worst quarterly drop since 1982.