Consumer sentiment plummeted to a 13-year
low
Consumer sentiment slumps after Katrina
Yahoo News/Reuters
By Ros Krasny Fri Sep 16, 2005
CHICAGO (Reuters) - U.S. consumer confidence plummeted to a 13-year low in
early September, battered by record high gasoline prices and the full force of
Hurricane Katrina, a report showed on Friday.
Separate data showed the U.S. current account deficit, the broadest measure
of U.S. trade with the rest of the world, narrowed in the second quarter but
remained at levels seen as unsustainable over the long term.
The University of Michigan's closely-watched consumer sentiment index fell
to 76.9 in September from 89.1 in August, far below Wall Street forecasts and
the 81.8 hit after the September 11, 2001, attacks on New York and
Washington.
The current conditions dropped to the lowest level since December 2003 while
the expectations index plummeted to the lowest since February 1992.
"If these declines were part of the normal economic cycle we would now call
for a recession in the United States. But they aren't; the index is responding
to a shock, and we expect it quickly to rebound," said Ian Shepherdson, chief
U.S. economist at High Frequency Economics.
The result was similar to trends in other consumer surveys as well as a
string of major polls showing waning support for the Bush administration's
economic policies.
"I think there's probably also a degree of loss of confidence in the
government," said David Sloan, economist at 4CAST Ltd. in New York.
Analysts said the Michigan index suggested consumers, after months of
stoicism in the face of rising gasoline prices, have reached a tipping point.
For some Americans, gas prices well over $3 per gallon in some areas threatens
the sustainability of the suburban SUV-shopping mall lifestyle.
Moreover, disturbing images from the aftermath of Hurricane Katrina revealed
broad social and economic inequalities in the United States, adding to concern
about the nation's direction.
"It really does reflect the enormous amount of coverage of the Katrina
disaster," said John Shin, economist at Lehman Brothers in New York.
Analysts note that consumers often sing the blues but rarely cut spending as
a result -- the link between sentiment and spending is tenuous. Still, the
latest drop in confidence was termed a worry for retailers.
"We expect a couple of very rough months for consumers spending,"
Shepherdson said.
U.S. financial markets showed little response to the report, which had been
telegraphed by other indicators this week. The stock market posted moderate
gains while U.S. Treasury securities yields rose on worries about
inflation.
Earlier, the Commerce Department said the U.S. current account deficit
narrowed in the second quarter to $195.7 billion, but the previous quarter's
record deficit was revised even higher.
The quarterly shortfall, the second highest on record, compared with Wall
Street forecasts for a deficit of $193.0 billion. The first quarter gap was
revised to a record $198.7 billion from the initial $195.1 billion deficit.
"Despite the fact that you had a narrowing on the quarter based on the first
quarter being revised wider, the outlook really isn't that positive," Sophia
Drossos, G10 currency strategist at Morgan Stanley in New York.
The quarterly current account deficit ran at 6.3 percent of gross domestic
product in the second quarter compared with 6.5 percent in the previous three
months.
Economists and Federal Reserve officials have warned that such levels are
unsustainable over the long run and represent a serious imbalance in the U.S.
economy.
The deficit partly reflects high levels of U.S. consumption but an extremely
low savings rate. Foreign investors are left to finance the gap.
"The trade deficit remains the single most important tax on U.S. growth and
burden on American workers," said Peter Morici, professor of international
business at the University of Maryland in College Park, Maryland.
The dollar has been plagued in recent years by concerns over the current
account deficit, although it has appreciated from lows hit last year and has
been steady in recent months.
"The expectation is that it (the gap) will continue to grow until there's
more give from the Asian countries because most of their currencies are tied to
the U.S. dollar," said Timothy Rogers, chief economist at Briefing.com in
Boston.
(Additional reporting by Alister Bull in Washington)
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