Waning U.S. consumer mood raises recovery questions

By John Parry and Alister Bull

NEW YORK/WASHINGTON (Reuters) - U.S. consumers' moods soured in early July on persistent worries about jobs, a survey showed on Friday, offering little hope their spending will help the sputtering economic recovery.

Another report showed domestic demand for foreign goods slumped in May, reflecting persistently weak consumer spending, which helped shrink the monthly trade deficit to the smallest since 1999.

Consumer sentiment wilted in early July to the weakest since March, when confidence in the financial sector and economy was at a low, the Reuters/University of Michigan Surveys of Consumers showed.

Consumers' growing anxiety about a protracted economic downturn, job security and loss of wealth were key factors depressing sentiment, the survey said. Americans were also uneasy about the recent slip in stock prices, some analysts said.

"It underlines the ongoing gloom facing the U.S. consumer and further delays prospects for a near-term recovery. That will weigh heavily on risk sentiment," said Brian Dolan, senior currency strategist with Forex.com in Bedminster, New Jersey.

"Consumers concluded that the economic downturn would last longer and their personal finances would not recover as quickly as they had previously expected," the Reuters/University of Michigan Surveys of Consumers said in a statement.

The survey's preliminary index of confidence for July fell to a reading of 64.6 from the final reading for June of 70.8.

Recent income gains were reported by the fewest consumers in the more than 50-year history of the survey, the statement said.

The survey's expectations component "has been seen as reasonably influenced by equity price moves. Having had a good quarter, equities are down so far in July, so we thought that would be a little bit of a subtraction," said John Ryding, chief economist with RDQ Economics in New York.

On Wall Street, stocks were lower, with the Dow Jones industrial average off nearly 1 percent, while U.S. Treasury prices climbed on the latest signs of economic weakness.

Stocks' recent pullback has put renewed pressure on household budgets. The S&P 500 index has fallen about 4 percent so far in July.

"Consumers reported a larger negative shift in their longer term outlook for the economy. The majority of consumers thought that widespread unemployment would persist over the next five years," the survey said.

Despite the survey's negative outlook, Ryding said he does not think it "derails the recession-ending story.

"We think the recession came to an end in the second quarter but it is a little bit of a question mark on the part of consumers and we're just going to have to see how that plays out."

DEMAND FOR FOREIGN GOODS SLUMPS