US consumer sentiment stabilised in early August as consumers took heart from the stock market's recent recovery and grew more upbeat about their current finances, offsetting still-pervasive worries about the economy. The data was published as it emerged President Bush was considering a package of measures to kickstart the American economy.
The latest report provided some hope that consumer spending, which drives about two-thirds of the economy, will continue to help an economy beset by weak corporate profits, sluggish growth and a delay in an employment recovery from last year's recession.
The University of Michigan's consumer sentiment index fell modestly to 87.9 in early August, compared with a final 88.1 in July, market sources said, holding at its lowest level since November.
The index's drop was a tad lower than economists' forecasts for a mild rise to 88.3.
"Attitudes seem to be stabilising, and actual spending, though perhaps moderating excluding autos, has remained reasonably decent so far in the immediate aftermath of the July stock market debacle," said Stephen Stanley, senior economist at Greenwich Capital Markets.
"This is a hopeful sign that the economy may hang in and maintain moderate growth in the second half of the year rather than collapsing into a double-dip recession," Mr Stanley said.
So far, spending has held up despite a slide in sentiment this summer that was spurred on by a stock market sell-off that brought the broad stock market to five-year lows in July.
Worries about corporate scandals, shoddy accounting and a start-and-stop economic recovery drove most of the selling.
Most analysts were optimistic about prospects for an improvement in sentiment in coming months. That could mean, at the very least, modest consumer spending going forward. "Looking forward, consumers remain cautious in their outlook," said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis. "But with consumer confidence stabilising, income rising and an improving stock market, consumers should be spending at a moderate pace."
US stocks came off their lows of the session after the data were released, while US Treasury securities, which had rallied strongly before the number, sold off by late morning trading.
The stabilisation in the closely-watched Michigan index was driven entirely by the current current conditions component, which tracks consumers' views about their present financial situation and which analysts say is more useful for predicting future spending patterns. The preliminary current conditions index rose in early August to 100.2 from 99.3 in July.
But the expectations index, which measures attitudes about the 12 months ahead, edged one point lower to 80 in August from 81. in July.
The outlook for future personal finances and buying conditions deteriorated in early August and only 12 per cent of respondents said business conditions were better than they were a year ago.
Just more than one-third of respondents expected "good times" over the next five years.
Separately, the US Labor Department said its consumer price index in July rose only 0.1 per cent, seasonally adjusted, for the second consecutive month, meaning inflation was all but absent.
President Bush said yesterday he is considering a package of measures to revive the American economy, including enticements to bring investors back to a stock market weakened by accounting scandals. He declined to give specifics but said the package could include proposals to reform retirement plans, make changes to thecapital-gains tax and lower taxes on dividends. - (Reuters)
