Originally created 08/14/04

U. Mich.: Consumer confidence down in August

NEW YORK - Overall consumer confidence levels softened unexpectedly as of the middle of August amid a big drop in consumers' views on the economic outlook, said a report released Friday.

The main index of the University of Michigan's mid-month report on August consumer sentiment decreased to a reading of 94.0, versus the 96.7 level seen in July and the 95.6 hit in June, according to people who had seen the report. The Michigan report is released only to subscribers.

The preliminary August reading came in well below the 97.5 expected by economists in a survey conducted by Dow Jones Newswires.

The components comprising the Michigan report were mixed. The group's mid-month consumer expectations index was said to have fallen sharply to 84.7, versus the 91.2 mark hit in July. But the early reading on the current conditions index for August increased to 108.4, from July's 105.2 reading.

The Michigan report comes at a tender time for the U.S. economy. During June and July a notable number of economic indicators, especially on the hiring front, have slowed considerably. That softening has raised fears that overall U.S. economic activity may be stalling out.

The Federal Reserve isn't buying that story, and is instead holding out one of the more optimistic views on the outlook. In hiking interest rates on Tuesday, the central bank attributed most of the recent slowdown to the recent surge in energy prices, and said the economy "appears poised to resume a stronger pace of expansion going forward."

Consumer confidence data, while not closely watched by Fed officials, is nonetheless garnering more attention because such measures are intimately tied to the state of the labor market. And until the preliminary August Michigan report, measures of confidence have remained resilience in the face of the reduced hiring.

Economists said the Michigan numbers were clearly choppy, but not surprising.

In the report, it's pretty clear "people spit the newspaper headlines back at you," said J.P. Morgan Chase & Co. economist Jim Glassman.

He explained that the report looked to be a reflection of the economy's energy and hiring woes, but also the generally decent spending environment. "Consumer spending did slow down in the spring quarter, and it's come back a bit" since then, Glassman said.

And it's consumer spending that matters most, regardless of what consumers are saying about the economy. On Thursday the government reported retail sales data that portrayed a better climate than many economists had expected.

Goldman Sachs economist Ed McKelvey said the retail spending data "was much stronger than the headline figures implied." He said the July retail sales data and other reports "uniformly point to an upward revision to second-quarter growth."


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