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Another Small Improvement in House Prices, and Confidence Returns

U.S. housing prices, as measured by S&P's Case-Shiller index, inched higher in June. Prices were up 1.4 percent for the month, following half a percent in May. Consumer sentiment improved in August, after dropping for two months. Neither data point is thrilling, but each is another brick in the foundation for a recovery.

All but two of the 20 regions that Case-Shiller measures showed a month-to-month increase in June, the laggards being Detroit and Las Vegas. Several markets have shown three or four monthly increases: San Francisco, Atlanta, Chicago, Denver, Boston, Washington D.C., Cleveland and Dallas.

But still, prices are down 15 percent from a year ago, and stand about where they did in mid-2003. And the number of existing home sales is still lower than it was in 2002, and about two-thirds of sales involve either tax-motivated first time buyers or foreclosed properties. Housing remains very slow.

After falling for two months in June and July, the Consumer Confidence Index recovered this month, to a level of 54. Following the bursting of the dot-com bubble, the index spent most of this decade hovering around 100. But we consumers are feeling twice as good as we did in February, when the index bottomed out at 25.

Some survey details: about five percent of people are planning to buy a car in the next 12 months; about three percent plan to buy a house; and 25 percent expect to buy a major appliance, the most frequent choice being a television. Unlike consumer's confidence on the economy and job prospects, however, the buying plan responses have not improved much from the dark days of January and February.

The recovery will be slow, Fed Chairman Bernanke said last week. The White House echoed that view today with an updated budget, predicting that GDP will shrink 2.8 percent for 2009, more than the OMB's earlier forecast of a 1.2 percent drop. And for next year, the forecast is cut from growth of 3.2 percent to just 2 percent. Slow indeed.

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