Economy Watch: Consumer Sentiment Takes a Dip

By Dees Stribling, Contributing Editor

The preliminary Reuters/University of Michigan consumer sentiment index for July, which was reported on Friday, was down to 72.0 from the June reading of 73.2. That was lower than economists had expected and, in fact, the lowest reading for the year. The usual suspects are probably to blame: persistent unemployment and slow all-around growth in the U.S. economy.

But it’s possible that the seeds of a turnaround in sentiment are within the report. The current conditions component of the index was up 1.7 points over the last two weeks to 83.2, which is lower than the readings early in the year, but higher than in June. So it’s possible that by the end of July, consumer sentiment might eke out a gain. Then again, the expectations component was down 3 points to 64.8, which is its weakest reading of the year.

One thing with the potential to add a little zen to consumer sentiment in the coming weeks is continuing moderation in the price of gas. A month ago, according to AAA, a gallon of regular gas sold for an average of $3.524, and a year ago it was $3.667; on Sunday the average was $3.396 per gallon.

Wholesale prices barely move in June

The Producer Price Index for finished goods increased 0.1 percent in June, the U.S. Bureau of Labor Statistics reported on Friday, marking a shift in direction for the PPI. Prices for finished goods had moved down 1 percent in May and 0.2 percent in April.

The movement of the PPI may be a preview of the impact of the dry summer weather in the Midwest (though the U.S. Department of Agriculture denies there’s much impact on food prices yet). Finished foodstuffs were up 0.5 percent in June, the largest advance since a 1 percent rise in November 2011. Intermediate food climbed 1 percent in June, the largest advance since a 1.4 percent increase in August 2011. More than half of the June 2012 rise in intermediate foodstuffs can be traced to a 2.2 percent advance in prices for prepared animal feeds—which are mostly corn.

Interestingly, the index for crude foodstuffs and feedstuffs decreased 1.6 percent in June, according to the bureau. Lower prices for slaughter cattle also were a major factor in the decrease. Rather than feed their cattle ever-more-expensive animal feeds, many producers are selling their cattle now, thus augmenting the supply of meat.

Friday the 13th turned out to be a lucky day for investors, seeing the largest spike in the equity markets in weeks, probably because of strong bank earnings, especially J.P Morgan. The Dow Jones Industrial Average gained 203.82 points, or 1.62 percent, while the S&P 500 was up 1.65 percent and the Nasdaq advanced 1.48 percent.