The American stockmarket is now within a solid week or two’s trading to moving back into the black for 2008.

US consumers’ confidence however is at a 28-year low and new single family home starts (what we called owner-occupied detached dwellings) fell to their lowest level in 17 years last month, even though there was a small uptick in demand for apartments and new home permits rose for the first time in half a year (though with upwards of 10 months’ supply of unsold new and existing houses, you’d have to question the accuracy of the figures and the size of demand.)

At Friday’s close, the Standard & Poor’s 500 Index was within 3% of going positive, the Dow Jones average, 2.2%, and the Nasdaq around 4.8%.

Gone is the gloom of two months ago, when fears peaked as the US Federal Reserve bailed out the Bear Stearns investment bank and forced its sale to rival JP Morgan for a knock down price that ended up at $10 a share.

Inflation remains a concern as the real impact of the rise in oil and food costs is not being reflected in the Consumer Price Index. Oil prices hit a new high of $US127.82 on Friday before falling back to close at just over $US126 a barrel; the US dollar remains weak as investors don’t know whether to cheer or fret about interest rates and petrol prices are now well over $US3.77 a gallon for standard (regulator) grade fuel; a record.

In Australia, we will find out this week how consumer confidence is going and whether it was impacted by last week’s Federal Budget. Even though there was enough in the Budget to please the Reserve Bank, an upturn in consumer confidence here won’t help expectations about interest rates, or monetary policy’s next move.

The fall in US consumer confidence earlier this month is the most accurate guide to the way consumers are feeling and the health of the US economy; much more accurate than the “sunny days are here again” feeling among a lot of investors, brokers and analysts on Wall Street.

The Reuters/University of Michigan consumer confidence index fell from 62.6 to 59.5 in May, the lowest reading since June 1980, at the depth of the second oil shock. More worrying was the news about inflation expectations; they rose to 5.2%, the most since February 1982, and up from 4.8% in April.

Seeing the official figure was 3.9% in the year to April, that’s a reasonable judgement by ordinary Americans: after all, US analysts and economists point out that a major measure of cost increases — which uses housing rents as its basis — was kept down by the rising number of unwanted and unsold houses, while the impact of petrol prices in April was ‘smoothed’ too much by the system of seasonal adjustment the US uses to measure moves in petrol prices at certain times of the year.

Almost 250,000 American homeowners found themselves in some stage of the foreclosure process in April, an increase of 65%, but moves in the US Congress to help struggling home owners with a $US300 billion package failed because the Republicans wouldn’t agree to the move which was passed by the Democrat-dominated lower house. The Republicans, echoing President George W Bush, say they don’t want to bail out ‘speculators’; ignoring the fact that the US Fed continues to bail out the very people who caused the mess: investment and other banks plus their investor, adviser and other mates.

There are approximately 80 million homes in the US and an estimated 55 million are covered by mortgages. Of those, four million are behind on payments; foreclosure proceedings were begun on about 1.5 million homes last year, up more than 50% from 2006. The US Treasury and other commentators and analysts are predicting that US house prices could fall a further 10-15% before reaching bottom.

According to a recent estimate from Moody’s Economy.com, one in roughly 12 American families with mortgages – around four million — already owe more than the current value of their homes. By early 2009 Moody’s reckons around one in four, or 12 million, American homeowners will be underwater on their housing loans. Many will continue to pay their mortgages on time but equally many won’t, can’t, or will just toss in the keys and walk away.

That will be part of Bush’s legacy to the American people; and will be the biggest single issue for the new President.

A massive underclass is in danger of being created, the drowning but honest mortgage-owning American.