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Morning Call: Lower Gas Prices Will Prop Up Consumer Spending ... For Now

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A preliminary read on consumer sentiment this morning came in at its lowest level since September, according to the University of Michigan's consumer survey. The drop reflects initial worries from consumers in the wake of recent stock market declines as well as rising recession concerns given troubles in the subprime mortgage market.

Will the consumer be able to hold up the economy as it has for so long? Gregory Miller, chief economist at SunTrust Banks, says consumers are facing a lot of headwinds.

"There are a lot of people working, but if you look back over near-term history, the increments for new jobs, while they're still healthy, have been coming in in significantly smaller increments since the middle of last year," Miller said.

"The data that we're looking at now ... is the worst since a year ago or three months ago. The trends, while they may still be healthy, are moving in a negative direction," he said.

David Greenlaw, chief economist at Morgan Stanley, says the numbers were pretty much in line with expectations and he is still optimistic that consumers will stay resilient.

"I think that as long as the labor market holds together -- and all indications at this point suggest that the labor market is holding together pretty well -- I think the consumer will be pretty well supported," Greenlaw said. "We may see consumption growth moderate a little bit, but I think it will stay relatively close to 3% on real personal spending."

SunTrust's Miller said falling energy prices will help the consumer in the short run. "A dollar off a gallon of gasoline will help people keep their spending up but it won't help people from paying down their credit cards a whole lot," he said.

Morgan Stanley's Greenlaw agreed and said high gas prices at the pump are not sustainable given the recent declines in crude oil prices. "We may get another dose of relief from falling energy prices going forward."