Consumer sentiment tumbles in August

NEW YORK Fri Aug 12, 2011 10:59am EDT

A man stands outside a store advertising that it is going out of business in New York, July 19, 2011. REUTERS/Shannon Stapleton

A man stands outside a store advertising that it is going out of business in New York, July 19, 2011.

Credit: Reuters/Shannon Stapleton

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NEW YORK (Reuters) - Consumer sentiment dropped to its lowest point in more than three decades in early August, as fears of a stalled recovery gelled with despair over government policies, a survey released on Friday showed.

The Thomson Reuters/University of Michigan's preliminary August reading on the overall index on consumer sentiment came in at 54.9, the lowest since May 1980, down from 63.7 in July. It was well below the median forecast of 63.0 among economists polled by Reuters.

High unemployment, stagnant wages and the protracted debate over raising the U.S. government debt ceiling spooked consumers, polled before the downgrade of U.S. sovereign debt by Standard & Poor's a week ago.

"Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government's role," survey director Richard Curtin said in a statement.

In the stock market the S&P 500 and the Nasdaq turned negative following the report, while the price of U.S. Treasury securities rose. Data earlier on Friday showed strengthening retail sales in July.

"The confidence was guaranteed to go down given all the upsets in the market," said Kurt Karl, Chief U.S. Economist at Swiss RE in New York. "Hopefully this won't be the precursor of consumers' action in August."

The survey's gauge of consumer expectations slipped to 45.7, also the lowest since May of 1980, from July's 56.0, well below a predicted reading of 55.3.

The Obama administration received poor ratings from 61 percent of respondents, the worst showing among all prior heads of state.

"This was more than the simple recognition that traditional monetary and fiscal policy measures were largely spent; it was the realization that the government was unable or unwilling to act," Curtin added.

Two-thirds of all consumers reported that the economy had recently worsened, and just one-in-five anticipated any gains during the year ahead.

Three quarters of respondents expected bad economic times, just below the all-time peak of 82 percent in 1980.

Consumer buying plans fell back to their recession lows, and 46 percent of respondents said they expected unemployment to rise.

The survey's barometer of current economic conditions was 69.3 in August, down from 75.8 in July and below a forecast of 74.3.

The one-year inflation expectation remained stuck at 3.4 percent, while the five-to-10-year inflation outlook also flatlined at 2.9 percent in August.

(Additional reporting by Richard Leong, Editing by Chizu Nomiyama)

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