NEW YORK (Reuters) - U.S. consumer sentiment worsened more than expected in June on renewed concerns about the outlook for the economy, while worries about inflation eased modestly, a survey released on Friday showed.
A key gauge of future U.S. economic activity rose more than expected in May to a record high, but high gasoline prices and a weak housing market will see growth remaining moderate.
KEY POINTS: * Consumers remained pessimistic about stagnant incomes and job prospects, and their view of their own finances was largely unchanged at negative levels, the Thomson Reuters/University of Michigan survey showed. * The preliminary reading on the overall index on consumer sentiment was 71.8, down from 74.3 the month before. It was below the median forecast of 74.0 among economists polled by Reuters.
“Normally, sentiment readings of 60 mean it’s a recession and readings near 80 mean times are okay, or almost good. Now the readings are at 70. That’s quite representative of how people feel. Job growth is, at best, anemic and the unemployment rate is high. If you’ve been laid off, it’s probably been for a long period of time. That can’t help but affect these sentiment figures. And whenever you open the paper, there’s more bad news. The one positive development is that gas prices have come down and businesses and consumers are not pulling in their heads.”
“In the current climate where households are very concerned about the economic outlook, they are taking what they see on television to heart. They are concerned about the economic recovery stalling and perhaps a double-dip recession around the corner. There is a good chance if this fall in confidence is maintained, we could see a modest drop in consumer spending in the current quarter through the third quarter.”
BORIS SCHOLOSSBERG, DIRECTOR OF RESEARCH, GFT FOREX, NEW YORK
“The University of Michigan data could hurt the euro in the longer run. The euro is having a knee-jerk bounce on an anti-dollar flow and the positive reaction to the possible resolution for Greece. But from a risk perspective, this data is negative. It suggests U.S. consumer sentiment is deteriorating, which doesn’t bode well for U.S. growth or global growth. All of this does raise the question of how the Fed will react in the future. I think they’re obviously handicapped from doing anything proactive. But I don’t think they will take away any liquidity.”
CLARK YINGST, CHIEF MARKET ANALYST AT JOSEPH GUNNAR & CO IN NEW YORK:
“We obviously monitor consumer confidence, but it is very fickle and there’s not much of a correlation that we’ve been able to detect between confidence and behavior. Sometimes they diverge remarkably. So we don’t put a lot of emphasis on this in terms of forecasting what spending will be, even though it was disappointing relative to forecasts. I’m sure renewed concerns about the labor market sparked the weakness.
“What could be described as ‘encouraging news’ out of Europe regarding a possible rescue of Greece is the primary driver of the rally this morning.”
TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK
“The softness in confidence needs to be placed in the proper context. Despite all of these headwinds we’re still within the range we’ve occupied for the last several months.
“There are a lot of headwinds. Among the negatives you’ve got headlines coming out of Greece and the economic data that makes consumers question whether the U.S. economy is slowing down.
“Once the dust settles I think what you’ve still got is confidence that moves sideways.”
DAVID SLOAN, ECONOMIST, IFR MARKETS, A UNIT OF THOMSON REUTERS:
“The result is a disappointment for those who were hoping recent declines in gasoline prices might help kick-start the consumer where spending has recently lost some momentum. Indeed, consumers do not appear very impressed with the fall in gasoline prices, with the 5 year inflation view edging up to 3.0% from 2.9% and the 1 year view seeing only marginal slippage, to 4.0% from 4.1%.”
MARKET REACTION: STOCKS: U.S. stock indexes slipped slightly BONDS: U.S. bond prices were little changed FOREX: The dollar extended losses