ICS Magazine

Consumer Sentiment Falls Unexpectedly

August 20, 2003
NEW YORK (Reuters) - U.S. consumer sentiment fell unexpectedly in August, market sources said on Tuesday, as Americans weigh a lukewarm economic recovery that has clear hot spots but has yet to show its staying power.

The University of Michigan's closely watched gauge of consumer sentiment fell to a preliminary August reading of 90.2 from July's 90.9 final reading.

Economists surveyed by Reuters had forecast a preliminary median August reading of 91.0. The survey was due to have been disseminated on Aug. 15, but was postponed due to Thursday's historic North American power outage.

The survey's index on consumers' current view of the economy fell to 100.5 in August from July's 102.1, while the index of consumers' future expectations slipped fractionally to 83.6 from a final reading for July of 83.7. The survey is released only to paying subscribers.

"Essentially, consumers are still jumpy. The economy is showing small signs of improvement, but we've seen small signs of improvement earlier in the recovery, and they petered out," said Kathryn Kobe, chief economist at Joel Popkin and Co. in Washington, DC.

Analysts watch indexes of consumer confidence for clues on consumer spending, which has been a pillar of support for the U.S. economy while businesses have been frugal. Corporate spending on equipment and software showed only slight signs of growth in the second quarter.

"The index ticked up a good deal post-war in Iraq when it seemed that this would be a very smooth wonderful transition away from Iraq," said Steven Wieting, senior economist at Citigroup in New York.

Last week, U.S. retail sales posted an unexpectedly strong advance in July, up 1.4 percent with strength in auto sales, which in turn followed a stronger than expected advance in second-quarter gross domestic product growth. This data paints a brighter picture of the U.S. economy, but economists remain cautious given that the stock market has turned in only mixed results on the good news.

Earlier on Tuesday, U.S. housing starts advanced at their fastest pace since 1986, rising 1.5 percent in July to a seasonally adjusted 1.872 million annual rate. The report indicates rising mortgage rates, although still at their lowest levels in a generation, have yet to slow the market for new homes.