valueline.com
Market Update with Harvey Katz, Value Line's Chief Economist
8/29/2006 10:40 AM - Special Economic Report
Consumer confidence, which is often viewed as a barometer of future spending by the public, registered a larger-than-expected decline over the past month. Specifically, the Conference Board's gauge of confidence fell to 99.6 from 107.0 last month. A falloff to about 102 had been the expectation.
Also, in the report, the August Expectations Index fell from 88.9 to 83.8, while the prevailing view of the present situation fell from 134.2 to 123.8. The Conference Board's aggregate Index of 99.6, meanwhile, was the lowest reading since last November, although as a sentiment measure that reading is still comparatively strong.
Our sense is that this gauge of sentiment is somewhat fickle and this decline doesn't portend a marked slowdown in economic growth or worse, a recession. However, there is no denying that the weaker housing market is taking a toll on consumer optimism and on the willingness to spend. As such, the second-quarter slowdown in growth is probably a harbinger of things to come as we look out to the final months of this year, when U.S. Gross Domestic Product growth is likely to come in at 3%, or less.
The good news is that this deceleration in activity decreases the likelihood that the Federal Reserve will push interest rates any higher this year. Indeed, today's lackluster Consumer Confidence reading makes it rather likely the Fed will stand pat on rates when it meets on September 20th.
How has the stock market reacted to all this? Not very well. unfortunately, as an early rally has faded and equities are now trading lower on the session, with the Dow Jones Industrial Average currently off by some 30 points.
EK!!! |
