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Consumer Sentiment Drops in August

A first-look reading shows consumer sentiment plummeted to a nine-month low in August as expectations dimmed.

The Thomson Reuters/University of Michigan Index of Consumer Sentiment came in at 79.2 in the preliminary August reading, down from a final reading of 81.8 in July and several points below the consensus forecast of 82.3. It was the lowest reading since last November, when the country was still shaking off the effects of October's government shutdown.

The survey's component indices were mixed: While the gauge of current economic conditions improved to 99.6—its highest point since July 2007—the index measuring consumer expectations lost 5.6 points to bring it down to 66.2.

"Consumers are reacting positively to lower pump prices and food inflation that remains elevated but has not worsened," commented Chris Christopher and Kristen Reynolds, economists at IHS Global Insight, in a note. "But though employment gains continue to be strong, the translation into higher wages has been slow to materialize, and the stock market has been volatile."

At its current level, the headline index is consistent with annualized consumption growth of close to 2.5 percent, said Paul Ashworth, chief U.S. economist for research firm Capital Economics. However, based on historical data, Ashworth noted the relationship between consumer confidence and consumer spending actually is "pretty lousy."

"Accordingly, we wouldn't read too much into this drop in confidence," he said.

The final August reading is scheduled for release August 29—just days after the Conference Board's ownconsumer confidence index, which hit a post-recession high in July.

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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