U.S. consumer sentiment deteriorated in early July to the lowest level since March 2009 on increasing pessimism over falling income and rising unemployment, a survey released Friday showed.
Confidence in government economic policies also curdled, the Thomson Reuters/University of Michigan survey showed.
U.S. lawmakers are wrangling over a budget deal that would allow the government to raise the debt ceiling—needed so the United States can fund its obligations next month.
The preliminary reading for the consumer sentiment index dropped to 63.8 in July from 71.5 the month before, falling far short of expectations of an increase to 72.5, according to a Reuters poll of economists.
The survey's barometer of current economic conditions fell to 76.3, the lowest since November 2009, from 82.0. The gauge of consumer expectations was also at its lowest since March 2009, tumbling to 55.8 from 64.8.
"Whenever the Expectations Index has been this low in the past, the economy has been in recession," survey director Richard Curtin said in a statement. "Nonetheless, one month's data is insufficient to signal a renewed downturn, particularly if a last-minute agreement on the debt ceiling results in a partial restoration of confidence."
U.S. stocks cut gains immediately after the report, while Treasury prices pared losses and the euro fell to a New York session low against the dollar.
Twice as many consumers reported hearing about new job losses compared with job gains, while half of all consumers said the economy had recently worsened. Last week, data showed the economy added a scant 18,000 jobs in June.
"We remain in a very slow recovery with extraordinarily grudging employment. The public at large still feels the recovery is, at best, a neutral factor," said Patrick O'Keefe, director of economic research at J.H. Cohn in New York.
"They're not seeing a lot of benefits." The proportion of consumers that rated government economic policies as poor rose to 52 percent in early July, up from 40 percent in June. The proportion of consumers that rated government economic policies as poor rose to 52 percent in early July, up from 40 percent in June.
Not a big surprise: falling income, rising unemployment, and failing government policies. The news on Main Street continues to be Screwflation.
It's still a world of the Haves and Have Nots, if you're not in one of those camps yet, chances are you will be in the next couple years.
The concern from here has to be will consumer confidence continue to weaken. That is a far more important development economically. The economy is too weak to suffer a negative shock wave and it won't take much to roll the US economy over!
Bernanke's QE2 at best has kept recent bad news from impacting the economy, but now that QE2 is ending the economy is exposed.
The short term good news might come in the form of a debt ceiling increase. I personally hate that idea because it's the wrong choice for the long run, but since we live in a world of short term thinking and solutions, we might see a short term improvement in the way people feel with an increased debt ceiling and budget deal.
That's what I'm looking for in the near term, a debt ceiling lift and budget deal. My guess is something between now and say the end of July or August. Neither side of the political spectrum wants to be the party that sends the economy into the tank, especially with next year being an election year.
No ceiling lift and budget deal would send the stock market into a severe correction, and the stock market is the only thing working.
Hope all is well.
J.D. Rosendahl, Rosey