Consumer sentiment drops in July

WASHINGTON (MarketWatch) -- U.S. consumer sentiment fell in July, according to a survey released Friday by the University of Michigan and Reuters, dragged down by a big drop in expectations about the economy.

Sentiment rose to a revised 66.0 from a reading of 64.6 in early July, but was down from the June reading of 70.8.

Economists surveyed by MarketWatch were expecting consumer sentiment to rise slightly to 65.5.

Analysts said the report highlights depressed levels of confidence as well as likely slow growth ahead.

"The July drop-back in confidence at still-depressed levels highlights the anemic pace of growth that appears likely as we enter the early quarters of the recovery," wrote Mike Englund of Action Economics in an email.

"While off the lows that were recorded when panic and paralysis were the order of the day, this measure of consumer sentiment nonetheless remains severely depressed," wrote Joshua Shapiro, chief U.S. economist of MFR, Inc., in an email.

Treasury prices remained lower Friday, pushing yields up, after the final reading of the index was released.

Both the current conditions and expectations readings fell in July, the survey found. Expectations plummeted to 63.2 from 69.2, while the current conditions number dropped to 70.5 from 73.2 in June.

The weaker expectations number is a sign of consumer worry about the economy, although it is up from 53.5 back in March.

What recovery?

This post is from Robert Reich. Mr.Reich was the U.S. former 22nd Secretary of Labor. He poses some realistic signs of continued lag of growth in the economy.

"The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.

Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.

That's where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.
Personally, I don't buy into either camp. In a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water -- owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.

My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.

The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come."