Sun, Aug 16, 2009 page11

• US consumer morale declines

  VW BUG: An analyst said that as US government initiatives taper off, the economy’s recent upswing could turn from a V-shaped into a more volatile W-shaped recovery

  • REUTERS
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  US consumers’ gloom deepened earlier this month as worry about scarce jobs and falling income overshadowed positive news that industrial output last month grew for the first time in nine months.

  The latest data on Friday pointed to a sluggish recovery at best with little or no help to come from embattled consumers.

  The Reuters/University of Michigan Surveys of Consumers said on Friday its preliminary reading of the index of confidence fell to 63.2 from 66.0 last month, well below market expectations for a reading of 68.5.

  Consumer sentiment dropped for a second straight month as US households, battered by high unemployment and falling home values, gave less favorable views their personal finances.

  The erosion in confidence, coming a day after a government report showed an unexpected drop in retail sales added to fears that consumers would not drive the anticipated recovery from the worst recession since the Great Depression, leaving the economy vulnerable to a double dip.

  “Even though economic output is probably increasing again, consumers certainly appear to still be in a funk. This is not entirely surprising given how many jobs are still being lost,” said Abiel Reinhart, an economist at JP Morgan in New York.

  Consumers fuel about 70 percent of US economic activity.

  There were a few bright spots in the consumer survey report, including a rebound in the home buying conditions index, and households’ outlook for the labor market was less negative than in the prior month.

  “The survey suggests that households sense the economy is beginning to stabilize but they have not yet seen improvement in their own personal situation, and they probably won’t until the labor market begins to firm,” said Michelle Girard, an economist at RBS in Greenwich, Connecticut.

  Industrial output rose 0.5 percent, beating market expectations for 0.3 percent advance, after a 0.4 percent contraction in June. Aside from a hurricane-related rebound in October, it was the first monthly gain since December 2007, the Fed said.

  Industrial production was boosted as Chrysler and GM reopened plants that had been temporarily closed while the companies were under bankruptcy protection to reorganize, Fed data showed.

  It was also lifted by the government’s “cash-for-clunkers” program, which gives consumers a credit for trading in aging high fuel consuming vehicles for new fuel efficient models.

  Analysts worry that, with consumers keeping a low profile, a hoped-for recovery in the second half may be unsustainable.

  “Growth is spurred temporarily by government initiatives, such as the cash-for-clunkers program, which further lifts the prospect for auto production. As those programs will taper off, the upswing will turn from a V-shaped into a more volatile W-shaped recovery,” said Harm Bandholz, economist at UniCredit Markets and Investment Banking in New York.

  In another report, the Labor Department said US consumer prices were flat last month and dropped over the past 12 months at the fastest rate since 1950.

  Stripping out volatile energy and food prices, the closely watched core measure of consumer inflation rose 0.1 percent last month after increasing 0.2 percent in June.

  Compared with July last year, the core inflation rate rose 1.5 percent, the slowest advance since February 2004, after increasing 1.7 percent in June.
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