Consumer sentiment dips in July

In general, it was another pretty good week for the U.S. economy. Almost every economic data point indicated a positive for the economy, second quarter earnings have been in-line with expectations, and the stock market held its own, with the Dow pushing to close above 9,000 for the week.

One data point that was not a positive, however: the Reuters/University of Michigan Surveys of Consumers said its consumer sentiment index for July (final) fell to 66.0 from 70.8 in June, Reuters reported Friday. 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.

However, the July sentiment reading still exceeded economists' expectations. Economists surveyed by Bloomberg News had expected the index to fall to 65.0 in June.

Has consumer spending bottomed?

Caution among U.S. consumers prevails. In large part this is being driven by the enormous number of jobs the U.S. economy has lost in the past 18 months, and concerns over potential additional cutbacks. Further, given the relationship between job losses and consumer spending, don't look for consumer purchases to advance until job losses subside. Consumers will not merely take their cues 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.
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