Although the retrenchment in household spending has been widespread, purchases of motor vehicles have dropped off particularly sharply. On a more positive note, oil and gasoline prices – while still at high levels, in part reflecting the effects of Hurricane Ike – have come down substantially from the peaks they reached earlier this summer, contributing to a recent improvement in consumer confidence.
However, the weakness in the fundamentals underlying consumer spending suggest that household expenditures will be sluggish, at best, in the near term. The recent indicators of the demand for new and existing homes hint at some stabilization of sales, and lower mortgage rates are likely to provide some support for demand in coming months.