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Consumer Confidence Rebounds in July

Reuters
Friday, 25 Jul 2008 | 10:06 AM ET

U.S. consumer sentiment recovered unexpectedly from early 1980s lows in July as Americans received government tax rebate checks but remained pressured by high gasoline prices and falling home values.

The Reuters/University of Michigan Surveys of Consumers said its final July reading of its index of confidence rose to 61.2 from 56.4 in June. Analyst forecasts had pointed to no change from last month.

Grove shopping center in Los Angeles
Grove shopping center in Los Angeles

Both perceptions of current economic conditions and expectations improved somewhat on the month. Yet the outlook was far from rosy, according to the survey.

"The data still indicate an ongoing downturn in spending that will last well into 2009," the report said.

Inflation expectations one year out held steady at 5.1 percent, while looking further out at a five-year horizon they dipped to 3.2 percent from 3.4 percent.

The U.S. economy has been battered over the past year by a crisis that began in the mortgage sector but then spread to banking, infecting financial markets with a deep sense of mistrust that has curtailed lending in various sectors.

Consumer spending has also petered out after a prolonged credit-driven boom. Economists fear that retrenchment could worsen as weaker home prices reduce homeowners' ability and willingness to borrow.

Americans have also been squeezed by the rising cost of gasoline, an essential commodity in a nation of drivers. The price of crude oil has pulled back recently, trading below $124 a barrel after reaching peaks around $147 this month.

This retreat may provide some relief at the pump, but perhaps not enough to make the otherwise turbulent economic outlook feel that much better.

"Gas price expectations declined modestly in July, but were still higher than any year prior to 2008," the Reuters/UMich report said. "Despite the recent bounce (in confidence), buying plans for homes, vehicles and household durables remained quite negative."

At the very least, the retreat in long-term price expectations should provide some comfort to policy-makers at the Federal Reserve, who have been worried that an inflationary psychology might take hold of consumers and businesses.

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