* June consumer sentiment lowest since March 2009
* Manufacturing stalls in June on auto production
* Consumer prices post largest decline in a year
* Rising motor vehicle, apparel prices boost core CPI
(Adds details throughout, updates economists' comments)
By Lucia Mutikani
WASHINGTON, July 15 U.S. consumer confidence
hit a near 2-1/2 year low in early July and manufacturing
output stalled in June, further frustrating expectations of a
quick economic growth rebound in the second half of the year.
Worries about stubbornly high unemployment pushed the
Thomson Reuters/University of Michigan's index of consumer
sentiment to 63.8, the lowest since March 2009, a report showed
on Friday. Economists had expected the index to climb to 72.5
from 71.5 in June.
Separate data from the Federal Reserve showed manufacturing
output stagnated last month partly due to supply disruptions in
the auto sector related to the earthquake in Japan.
The reports were the latest in a series, including weak
retail sales and employment, to suggest the anticipated step-up
in growth in the second half of the year might not be as strong
has initially thought.
"We still expect an improvement in the second half, but the
question is how much can we grow?" said Yelena Shulyatyeva an
economist at BNP Paribas in New York. "Our view is the rebound
is not going to be anything like in the prior cycles because we
are growing at a lower potential rate right now."
Fed Chairman Ben Bernanke said this week the U.S. central
bank was prepared to act if growth falters further, but made it
clear that Fed is not at that point yet. [ID:nN1E76D0LM]
The economy was slammed by a combination of high commodity
prices and bad weather, causing growth to slow sharply to a 1.9
percent annual rate in the first quarter after a brisk 3.1
percent expansion in the final three months of 2010.
Disruptions to motor vehicle production and still high
gasoline prices are expected to have held growth to a pace
between 1.5 percent and 2 percent in the second quarter.
The government will release its initial second quarter
gross domestic product estimate on July 29.
Manufacturing in the second quarter posted its weakest rise
since the recession ended in mid-2009. There are indications
that manufacturing maintained its weak tone as the third
The New York Fed's gauge of factory activity was at minus
3.76 in July from minus 7.79 in June, another report showed.
That could suggest that some of the factors weighing on
manufacturing are not of a temporary nature.
Instant view on CPI - [ID:nnN1E76E08K]
Instant view on consumer sentiment - [ID:nN1E76E0FL]
Graphic-U.S. inflation: r.reuters.com/ges62s
Graphic-industrial output: r.reuters.com/gat62s
Graphic-Consumer expectations: r.reuters.com/jet62s
GASOLINE PRICES TUMBLE
The decline in consumer sentiment, which came even as
gasoline prices have dropped from their peak peak above $4 a
gallon in May, does not bode well for consumer spending.
Consumer spending accounts for about 70 percent of U.S.
economic activity and has been constrained by high gasoline
prices and a 9.2 percent unemployment rate. Employers last
month added a paltry 18,000 jobs.
Bickering over raising the country' debt ceiling is also
adding to economic uncertainty.
Stocks on Wall Street gave up much of their earlier gains.
Prices for U.S. government debt pared earlier gains after the
European Banking Authority said eight banks failed capital
stress tests, fewer than what traders had feared. The dollar
fell against a basket of currencies.
SOME POSITIVE SIGNS
On Friday, Citigroup became the second major U.S. lender to
show significant growth in outstanding corporate loans, a
potential source of growth of the economy. Citigroup's
corporate loan portfolio grew 4.4 percent to $205 billion at
the end of June from three months earlier.
On Thursday, JPMorgan Chase & Co. reported that business
loans increased 5.4 percent in the same three months to $249
Hard pressed consumers could get a reprieve from declining
commodity prices. Labor Department data showed the Consumer
Price Index fell 0.2 percent in June as gasoline prices tumbled
by the most since December 2008.
The drop in consumer prices was the largest in a year and
followed a 0.2 percent increase in May.
Stripping out food and energy, however, core CPI rose 0.3
percent after a similar gain in May. The rise in core inflation
reflected a lagged pass-through from high commodity prices and
economists saw no threat of an upward spiral in price
In the 12 months to June, core CPI rose 1.6 percent after
increasing 1.5 percent in May. Fed officials would like to see
that closer to 2 percent.
"Inflation is not a major issue, (a) lot of the factors
behind the rise are transitory," said Steven Rick, senior
economist at the CUNA in Madison, Wisconsin.
Wage growth remains benign, with average hourly earnings
flat in June. In the 12 months through June average hourly
earnings rose 1.9 percent. In addition capacity utilization by
factories was unchanged in June, pointing to ample slack in the
Last month, core inflation was pushed up by rising prices
for housing, new vehicles, used trucks and apparel. Apparel
prices recorded their biggest jump since March 1990, while the
rise in used cars and trucks was the biggest in more than 1-1/2
(Additional reporting by Pedro Nicolaci da Costa in
Washington, and David Henry and Leah Schnurr in New York)