U.S. consumer sentiment hits four-month low

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Almost every economic data point this week represented a positive for the U.S. economy, and the stock market more than held its own this week, with the Dow continuing what looks like a push to 10,000.

One indicator that came up short: the Reuters/University of Michigan Surveys of Consumers said its consumer sentiment index for August (final reading) came in at 65.7, Reuters reported Friday. The reading was above the 63.2 preliminary August reading, but nevertheless is at a four-month low.

The index hit a cycle low of 55.3 in November 2008; the index's record low of 51.7 was set in May 1980. Economists surveyed by Bloomberg News had expected the index to total 64.0 in August.

Consumers: remaining cautious

The tepid action in the consumer sentiment index in August indicatesthatcaution remains the operative phrase among U.S. consumers. Further, for the most part the reticence is being driven by the enormous number of jobs the U.S. economy has lost in the past 20 months, and Americans' concern over potential additional cutbacks. Further, given the relationship between job losses and consumer spending, don't look for consumer purchases to advance in a sustained way until job losses subside. In sum, consumers will not merely take their cue from economists or market analysts who say the recession is bottoming: they'll need to see tangible evidence that affects their lives -- namely, an end to job cuts.

Investors need to pay attention to consumer sentiment because it usually precedes consumer decisions to buy (rising sentiment) or hold off purchases (falling sentiment) -- and historically consumer spending has accounted for the bulk (60-65 percent) of U.S. GDP.

The University of Michigan's Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy.

Economic Analysis: The U.S. economy will have to record impressive monthly job growth -- 200,000 or more jobs created per month -- over quarters before we'll see an overwhelmingly positive attitude by consumers.

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