WASHINGTON Worries about rising interest rates and falling stock prices dinged U.S. consumer sentiment in early July, while other data showed a firm rise in wholesale prices, which could make the Federal Reserve more comfortable reducing its monetary stimulus.
The preliminary reading for the Thomson Reuters/University of Michigan's index of consumer sentiment edged down to 83.9 from 84.1 in June. The reading, released on Friday, fell short of forecasts although it remained near its highest level in almost six years.
"The collective mood of consumers may have slipped modestly but still remains upbeat," said Jim Baird, an investment officer for Plante Moran Financial Advisors in Kalamazoo, Michigan.
The decline came after a series of signals from the Fed that it was getting closer to ending a bond-buying program, leading to a selloff in stocks in June and a surge in mortgage rates.
However, stocks have since recovered on reassurances from the Fed that interest rate hikes are a long way off, and Friday's data was consistent with the view that economic growth will accelerate toward the end of the year.
The decline in sentiment was more pronounced among upper-income consumers who worried about rising rates.
Some of those worries could be positive signals for near-term economic growth. One in five households with incomes in the top third said it was better to borrow before mortgage rates rose further.
While consumers worried about the future, they were much more sanguine about the present. The barometer of current economic conditions rose to its highest level since July 2007.
Investors on Wall Street were largely unfazed by the data and stock prices were little changed after closing at a record high a day earlier. U.S. Treasuries prices held onto gains chalked up earlier in the day.
PRICE RISE COULD PAVE WAY FOR FED
A separate report showed U.S. producer prices rose more than expected in June, which some analysts took as a sign that a worrisome downward trend in inflation might be leveling out.
The Labor Department said its seasonally adjusted producer price index increased 0.8 percent last month, the largest gain since September.
A Reuters survey of economists had forecast prices received by the nation's farms, factories and refineries rising 0.5 percent last month, and the data sends a reassuring signal that demand is still strong enough to push prices higher.
"If there is a time we want to see higher inflation, this is one of them," said Carl Tannenbaum, chief economist at Northern Trust in Chicago.
While much of the increase in prices was fueled by a jump in gasoline, which could weigh on consumers, a gauge of underlying inflation pressures pointed to a bit more vigor in the economy as well.
So-called core producer prices, which strip out volatile energy and food costs, rose 0.2 percent last month, boosted by a 0.8 percent increase in the price of passenger cars. Economists had expected core prices to rise 0.1 percent.
The data could make policymakers at the Fed more confident about recent assertions that the economy was strengthening quickly enough for the central bank to begin reducing its bond-buying stimulus program by the end of the year.
The Fed's preferred measure of inflation showed a 1.3 percent gain in consumer prices in the 12 months through May, well below the Fed's 2 percent target. Several Fed policymakers have expressed worry over inflation drifting so low, with one arguing that the bond-buying program should continue at full steam until inflation firms.
(Reporting by Jason Lange; Additional reporting by Leah Schnurr and Richard Leong in New York; editing by Neil Stempelman and Paul Simao)