SENTIMENT AMONG US consumers, whose spending is critical to an economic recovery, dropped in July after four months of gains as unemployment approached 10 per cent.
The Reuters/University of Michigan preliminary index of consumer sentiment fell by more than forecast to 64.6 from 70.8 in the prior month. A separate report from the US Commerce Department showed the trade deficit unexpectedly narrowed in May to the lowest level in almost a decade.
Unemployment is rising even as economists predict an end to the recession in coming months. Consumers in the survey said they were less likely to buy cars or appliances, suggesting that the recovery may be weaker than anticipated. Stocks declined, with the Standard Poor’s 500 index poised to cap its longest losing streak since March.
“There’s a lot of concern about job losses and people think they won’t be able to earn more,” said Jonathan Basile, an economist at Credit Suisse Holdings in New York. “Until the employment picture clears up, we can’t anticipate persistent gains in consumer spending.”
The confidence index was forecast to dip to 70, according to the median of 59 economists surveyed by Bloomberg. Estimates ranged from 65 to 72. A gauge of expectations for six months from now, which more closely projects the direction of consumer spending, plunged to 60.9, the biggest drop since October, from 69.2.
Meanwhile, the trade deficit narrowed 9.8 per cent to $26 billion (€18.6 billion), the smallest gap since November 1999, from a revised $28.8 billion in April, a report from the US Commerce Department report showed yesterday. The gap was projected to widen to $30 billion, from an initially reported $29.2 billion in April, according to a survey of 71 economists. – (Bloomberg)
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