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Consumers less confident at end of September

An index falls in the last two weeks but beats August's reading. Second-quarter GDP is revised downward.

September 27, 2008|From Bloomberg News

American consumers lost confidence in September as they saw the credit crisis deepen, a sign they will curtail spending, according to a survey released Friday.

Meanwhile, a government report showed consumer spending was lower than initially estimated in the second quarter, slowing economic growth.

The Reuters/University of Michigan final index of household sentiment declined to 70.3, lower than forecast, after a reading of 73.1 in early September. Since the preliminary Michigan report was issued Sept. 12, Lehman Bros. Holdings Inc. filed for bankruptcy protection, the federal government took over American International Group Inc. and stocks plummeted.

"The credit crisis makes the outlook for growth more uncertain," said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. "The consumer is under pressure, and all these financial and credit concerns are going to weigh on the economy at the same time that there's concern about slowing growth outside the U.S."

Still, the number was higher than the August reading of 63, reflecting lower gasoline prices this month.

The confidence index was forecast to fall to 70.8, according to the median estimate of 62 economists surveyed by Bloomberg News. The gauge of sentiment averaged 85.6 in 2007.

The index of consumer expectations for six months from now, which more closely projects the direction of spending, declined to 67.2 from a preliminary reading of 70.9 in early September. The measure is up from 57.9 in August.

Also Friday, the Commerce Department reported that the U.S. economy expanded at an annual rate of 2.8% in the second quarter, down from a preliminary estimate of 3.3% issued last month. Personal consumption, trade and business investment all contributed less to gross domestic product than previously estimated, the report showed.

The biggest part of the economy, consumer spending, rose at a 1.2% annual rate from April through June, weaker than the 1.7% estimated last month. Spending received a lift in the second quarter from the government's stimulus plan.

The gross domestic product report showed that the Federal Reserve's preferred measure of inflation, which is tied to consumer spending and strips out food and energy costs, rose at a 2.2% annual rate, higher than forecast and faster than the 2.1% previously estimated. Prices overall came in lower than anticipated.

A deteriorating labor market is one reason consumer spending is likely to stagnate this quarter. The U.S. has lost jobs every month this year, and the unemployment rate in August jumped to a five-year high of 6.1%, according to the Labor Department.

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