Consumer Confidence Falling Fast though Impact on ARM Unclear

As the fears of recession and inflation continue to threaten the U.S. economy and business community, consumer confidence continues to tumble.

Though the Federal Reserve has acted on the possibility of slowed consumer spending and weak economic growth with multiple interest rate cuts, the effect on the U.S. consumers has been muted. Consumers on a whole continue to see weak prospects for the immediate future. Recently released statistics from the Conference Board’s Consumer Confidence Index showed it standing at 75.0, a decline of more than 12 points from January’s 87.3.

This followed January’s decline from 90.6 to 87.3, giving back the moderate gains made in December.

The troubling development for the ARM industry is that this deterioration of short-term expectations has continued as charge off rates have risen for a broad spectrum of outstanding consumer debt. Evidence of this was recently shown as the Federal Reserve reported credit card charge off rates rose to 4.13 percent in the fourth quarter of 2007, up from 4 percent in the third quarter, and a 17 basis point rise from the 3.96 percent seen in the fourth quarter of 2006.

For residential real estate loans the charge off rate for the fourth quarter was 0.44 percent, up from 0.12 percent one year prior.

It is widely anticipated that financial pressures on consumers will adversely affect the ARM industry for 2008, to what extent is yet to be seen.