House prices crashing, consumer confidence crumbling, business in retreat...yet inflation rising. The States faces the nightmare Stagflation scenario.
It gets worse and worse. Lots more seriously unpleasant stories keep floating across the pond.
As ever these days, the US housing market is bearing the brunt.
But as the gloom spreads, the nightmare of Stagflation (economic stagnation + rising inflation) is on the doorstep.
US home foreclosures jumped 8% in January and by 57% from a year earlier, according to property monitor RealtyTrac, with bank repossessions soaring 90% from a year earlier. Nevada, California and Florida posted the highest foreclosure rates.
House prices tumbled almost 9% in the final quarter of 2007 from a year ago, Standard & Poor's said last week, showing the biggest depreciation since comparative records began in 1987.
This was confirmed by the S&P/Case-Shiller index which saw a 9.1% plunge in home values, the highest-ever logged, in the 20 leading US cities for the year to December. Miami suffered a 17.5% collapse, Las Vegas and Phoenix each suffered a 15.3% subsidence while Los Angeles, San Diego, San Francisco, Detroit and Tampa all endured double-digit declines.
What really highlighted the extent of house-price erosion was the staggering 5.4% quarterly nose-dive compared with the previous three-month period, by far the largest quarter-on-quarter slump in the index's history. The greatest previous slide was the revised 1.8% drop in the third quarter of 2007.
Sales collapse as unsold stocks rise
So it comes as no surprise to hear that American new home sales in January shrank to a 13-year low, according to the Commerce Department, 34% below last year's figure.
And prices for new-builds have fared even worse than for existing properties with a biggest-ever 15% plummet from a year ago, said the officials, after a monthly moderation of 1.46%.
Despite a 2.2% drop in the number of unsold homes, slowing sales left builders with inventory equivalent to 9.9 months' supply at the current completion rate, the highest stock levels since supply equated to 10.3 months in October 1981.
Builders have been slashing prices and offering incentives such as built-in spas, plasma televisions and gym memberships to attract customers. But it's proving an uphill battle. Potential buyers have either become fearful of buying a depreciating asset or are waiting for even more discounting, suggesting that further price cuts may be necessary to boost sales.
Particularly as US consumer confidence has just diminished to its lowest level in five years, with the latest Conference Board index now pointing to the worst outlook for 17 years.
Within the report there was increasing caution about jobs. The proportion of respondents believing jobs are plentiful waned to 20.6% from 23.8% last month.
What's more, the latest report from the National Association of Purchasing Management-Chicago, widely regarded as the manufacturing barometer, showed American business activity contracting this month to the lowest since December 2001.
Throw in some price pessimism...
Over the past year, prices of US manufactured goods jumped 7.4%, the most since October 1981, according to official figures, while consumer prices gained 0.4% in January and a more-than-expected 3.7% year-on-year, the most since September 2005.
Although January consumer spending ratcheted up 0.4%, more than forecast, that was down to those higher prices. After adjusting for these, spending stalled for a second month, increasing concerns that the part of the economy that accounts for two-thirds of annual output is faltering.
It all means that the average American's outlay on debt service, housing, medical care, food and energy now accounts for over two-thirds of his total spending, the highest since record-keeping began in 1980, according to Bloomberg.
...and Stagflation has arrived
But despite the bad inflation news, and occasional tough talking from members of the US Federal Reserve (the Fed), interest rates are likely to be slashed further. 'Worst-ever-recorded' numbers tend to freak out central bankers.
The stock market now reckons that a further rate cut of up to 0.75% is a racing certainty either at, or before, the next meeting on 18 March. Whilst I don't believe that's the right response, all those housing market horror stories will give the Fed the perfect excuse to act. And probably, to make matters worse.
More: US Rate Cut Could Mean More Trouble
STOP PRESS: There's more...US construction spending fell for the fourth straight monthly in January by a sharper-than-expected 1.7%, according to just-released government data. This is the largest fall since a 3.6% slide in January 1994.
And the Institute for Supply Management announced a few minutes ago that US manufacturing contracted in February at its fastest pace in almost five years.
