US consumer sentiment falls. Sign of trouble?

Eric Risberg/AP
Alan Davey shopped for watches at a San Francisco Fossil store last month. Consumer sentiment fell for the second month in a row, according to a new report Friday.

What's wrong, Mrs. Consumer?

The stock market is way up since the spring. Job losses are slowing. Even factory production is finally turning positive.

So why are you so DOWN?

The latest indication comes from the Reuters/University of Michigan consumer sentiment index, which fell in August for the second month in a row. At 63.2, it now stands at its lowest level since the übergloom of March. Economists had expected the index to rise.

The survey follows a disappointing report on retail sales on Thursday, which dropped when it was expected to rise.

Consumers, it seems, see more wreck than recovery so far, especially when they assess their own financial situation. The Reuters/University of Michigan index of current personal finances plunged 11 points to 59, its lowest level since November 2008.

"There's a bit of a reality check here that suggests that it's not going to be easy to snap out of this recession," says Brian Bethune, an economist at IHS Global Insight in Lexington, Mass. "We're still ... suffering from the cumulative effects of this recession."

While consumer sentiment is not a good forecaster of future activity, the August readings should serve as a wake-up call to Washington not to get distracted from the economy by other policy initiatives, he adds. Maybe some stimulus packages, such as "cash for clunkers," will have to be extended to buoy growth.

"There is a risk of falling back that cannot be dismissed," Mr. Bethune says. "Trying to do [healthcare reform] during this particularly fragile part of the cycle is bad, bad timing."
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