As the University of Michigan-Thomson Reuters consumer-sentiment index fell to a preliminary July reading of 72.0 points last Friday, which was the lowest since December from 73.2 in June, the US economy is reflected to a fundamentally low-growth environment.
Summer doldrums for the US economy are likely to remain evident with a mediocre increase in retail spending and further signs of softening in the manufacturing sector. As a result, the data this week is perceived to be consistent with slower growth.
With views on Europe and US fiscal uncertainty continuing to constrain sentiment, business and buying conditions are expected to persist to deteriorate, which gives a feel for the direction of consumer spending. Though some economists still see little reason to believe consumers will sharply curtail spending based on recent patterns. The US is still adding jobs, though very slowly, and falling gas prices is alleged to put more cash in the pockets of consumers. Indeed, a silver lining in the retail report is that the modest rise in spending will almost certainly reflect less money spent at gas stations. As a result, consumers are likely to be more cautious, but not pack in.
The greatest concern to consumers is that wage and job growth is perceived to remain depressed over the foreseeable future, and that these meager gains are likely to be further diminished in the years ahead by rising taxes and benefit cutbacks. Financial markets had little reaction to the data. US stocks rose more than 1 percent in late morning trading as data from China allayed concerns a slowdown in the world’s second-largest economy would further hinder growth worldwide. While China’s growth rate slowed to 7.6 percent, it was better than some in the market had feared and left the door open for more stimulus.
Hence, worries about the strength of the global economy have grown of late, along with concerns the Euro Zone debt crisis is taking its toll. After growing at a 1.9 percent annual rate in Q1, the US economy is not expected to have done much better in Q2. Americans are expected to remain gloomy about their longer-term prospects, with 39 percent anticipating their situation would be better in five years. Households can’t get overly concerned at the moment, but it’s just an indication that the average household is pretty queasy about the current state of play and the US economy.
Written by AlgosysFx
