Consumer Sentiment Eases This Month

U.S. consumer sentiment eased in early January, according to a survey released Friday, as holiday shopping bills came due for payment.

The University of Michigan’s preliminary reading of its consumer confidence index for January was 95.8, down from December’s final reading of 97.1. Analysts on average had forecast that the index would rise to 98.

The survey’s index of current conditions came in at 110.4, up from December’s 106.7, and its index of consumer expectations gave a preliminary January reading of 86.4, down from the December reading of 90.9.

“It’s come time for the consumer to pay the piper when it comes to their holiday purchases,” said Chris Rupkey, chief economist at Bank of Tokyo-Mitsubishi in New York.

Consumer confidence is considered a barometer of consumer spending, which accounts for two-thirds of the U.S. economy.

In other economic news, Fannie Mae economists said U.S. home sales were expected to drop more than 7% in 2005 but still post the second-strongest year on record thanks to low mortgage rates and a pickup in jobs.

After four consecutive record-setting years, new-home sales should decline 8% to 1.10 million units, while existing-home sales should fall slightly more than 7% to 6.15 million units in 2005, according to the mortgage financier’s annual economic outlook.

Sales will probably fall more in 2006 as mortgage rates climb and house prices rise more slowly, damping demand, Fannie Mae said.

David Berson, Fannie Mae’s chief economist, said he expected a significant slowdown in home price appreciation. Fannie Mae forecast a 3% to 3.5% increase in the national home price index issued by the Office of Federal Housing Enterprise Oversight over the next few years, down from the 10% increase expected for 2004.

Long-term fixed-rate mortgages should average 6.25% to 6.33% in 2005, Berson said.