Index of U.S. Consumer Sentiment Drops

U.S. consumer confidence unexpectedly sagged in early June, contradicting an earlier, upbeat report on spending and confounding many economists who had projected that end of the U.S. war in Iraq would give shoppers a lift.

The University of Michigan said its index of consumer sentiment, which reflects individuals’ financial health and expectations about spending, fell to 87.2 in June from 92.1 in May. Most economic analysts had expected a slight increase.

Economists speculated Friday that the postwar boost in consumer confidence seen in May has petered out in the face of rising unemployment and a sluggish economy.

“You still have very, very nervous consumers, and they are just warily watching and waiting and anxious to see what the tax cut means and how soon business steps up their level of hiring,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

“It is still a strange environment out there.”

The University of Michigan survey came one day after the Commerce Department reported a larger-than-expected increase in consumer spending in May across a wide variety of goods and services. Many economists said the consumer spending report was more accurate than the survey of consumer sentiment, which is subject to large month-to-month swings.

Consumers’ “purchasing behavior may not necessarily jibe with what they’re saying,” said Keitaro Matsuda, senior economist at Union Bank of California. “I don’t know what all of a sudden changed people’s expectations.”

On a long-range basis, however, Matsuda and other economists noted that the June survey results were still above the bottom reached earlier this year as the Iraq war began and were about where they stood last summer.

“I’m not too concerned about this June,” Matsuda said.

In other economic data released Friday, the Labor Department reported that wholesale prices as measured by the producer price index fell by 0.3% in May from the previous month. Falling energy prices -- down 2.6% -- were behind most of the decline as they were in April.

A drop in energy prices, namely crude oil, also resulted in a small decline in the U.S. trade deficit in April.

The Commerce Department said the deficit, the difference between imports and exports, in April stood at about $42 billion, down about $900 million from March.