Don’t expect Western consumers to cheer up soon

There was grim news for consumers on both sides of the Atlantic today.

Here in the UK, we got the mortgage approval figures from the British Bankers Association (BBA). This group represents about 70% of the total home loan market. So today’s figures are a useful guide as to what’s likely to happen to the mortgage market in 2010.

The news wasn’t good. The number of approvals logged by the BBA for new house purchases was down 23% on December to just over 35,000. That’s up 38% on last year. But as the Bloomberg chart below shows (the red line), that’s not saying much. 12 months ago, the figure was plumbing the depths, having plunged some 70% within the previous two years.

OK, the latest drop was partly due to the end of the stamp duty holiday in December. But that just means the previous BBA result was artificially high. Either way, “it will be a long time before housing market activity returns to pre-crisis levels”, says Ed Stansfield at Capital Economics.

Clearly, this isn’t a great pointer for British house prices. But it’s also part of a bigger picture. This afternoon, we learned that US consumers are feeling pretty glum too. The blue line in the chart shows ‘expectations’ for the next six months. As you can see, there’s been a very sharp dip in hopes for the future.

We’ve been worried for some time that both the UK and the US would look distinctly dog-eared when the two governments’ ‘stimulus’ schemes started winding down. Which they now are.
Today’s news suggests that the ‘double-dip’ is well underway. To repeat our previous advice, this doesn’t feel like a good time to hold cyclical shares whose profits depend on economic growth. If you choose to invest in the stock market at all right now, defensive shares – with high yields – look a much better bet.