U.S. Economy: Consumer Sentiment, New York Manufacturing Gain

By Timothy R. Homan and Courtney Schlisserman

Aug. 15 (Bloomberg) -- Confidence among American consumers gained in August and manufacturing in New York grew the most since January as a slide in gasoline, oil, metals and grain prices eased cost pressures on households and companies.

The Reuters/University of Michigan preliminary index of consumer sentiment rose to 61.7, from 61.2 in July. The Federal Reserve Bank of New York's general economic index climbed to 2.8, from minus 4.9 a month earlier. A separate Fed report showed industrial production increased in July, boosted by the end of a strike at an auto-parts supplier.

Gasoline has retreated 6 percent since the start of last month, copper is down 14 percent and corn prices have slumped 26 percent, diminishing some of the threat to the economy of elevated commodity costs. At the same time, rising unemployment and falling property values mean consumers are unlikely to pick up spending, which economists project will stagnate next quarter for the first time since 1991.

``We're a little less pessimistic than we were a month ago,'' Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, said in a Bloomberg Radio interview. ``But we still think consumer spending in real terms could be negative in the second half.''

Stocks erased their advance in the minutes after the release of the consumer sentiment index, which was lower than economists had forecast, before recouping gains. The Standard & Poor's 500 Stock Index rose 0.5 percent to 1,299.34 at 10:56 a.m. in New York.

Commodities Drop

The Reuters/Jefferies CRB Index of 19 commodities has dropped 17 percent since the start of last month, a period when crude oil dropped 19 percent.

Consumers' expectations for inflation receded this month, the Reuters/University of Michigan survey showed. They expect consumer prices to rise an average of 4.8 percent over the next 12 months, down from a 5.1 percent forecast in the July survey.

Economists had forecast the confidence index would rise to 62, according to the median of 64 projections in a Bloomberg News survey. Estimates ranged from 56 to 69.

A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy cars and other big-ticket items, decreased to 69.3 from 73.1 the prior month.

Retail Sales

Sales at U.S. retailers dropped in July for the first time in five months, the Commerce Department said this week. Wal-Mart Stores Inc., the world's largest retailer, this week said that sales at stores open at least a year might not rise more than 1 percent in the third quarter as the boost from the federal tax rebates fades.

Output at factories, mines and utilities rose 0.2 percent last month after a 0.4 percent gain in June, the Fed reported today in Washington. Capacity utilization, which measures the proportion of plants in use, increased to 79.9 percent from 79.8 percent.

Demand for autos increased for a third month, reflecting a continued rebound from a strike at an auto-parts supplier. Gains elsewhere signal demand from overseas continued to boost orders even as U.S. consumer and business spending weaken.

``While export growth looks set to remain solid at least over the near term, an increasingly constrained consumer, deepening woes for the housing sector, and a desire to pare inventories will all weigh on manufacturing output,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

Strike Impact

Gains in auto output were ``due to rebounds after the end of a strike'' and did ``not reflect fundamental strength,'' he said.

Output was forecast to be unchanged, according to the median estimate of 79 economists.

Production of motor vehicles and parts increased 3.6 percent after rising 4.8 percent in June.

The resolution of a three-month strike at American Axle & Manufacturing Holdings Inc., General Motors Corp.'s largest axle supplier, may explain the rise in output even as sales slump. The walkout, which ended May 26, had halted production of about 330,000 units at GM plants.

Factories in New York were more optimistic about their prospects, according to the state's Fed Bank report. The index measuring the outlook for six months from now jumped 34.6, the highest level this year, from 15.6 in July. Readings of zero are the dividing line between growth and contraction.

The so-called Empire State index's measure of prices paid dropped by the most in more than two years.

Economists forecast the index would be little changed, rising to minus 4 this month, according to the median of 50 projections in a Bloomberg News survey. Estimates ranged from minus 11 to zero. The New York Fed started the gauge in 2001.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net