Drops in Consumer Confidence, Prices Temper Recovery Hopes

According to the monthly Reuters/University of Michigan Surveys of Consumers, released Friday, the index of consumer confidence fell from 66 points in July to 63.2 in August. The decline itself is less meaningful than the fact that economists expected consumer confidence to rise in August. This means the experts underestimated the pessimism of American consumers, which helped send the stock market down Friday.

"Consumers are facing three major hurdles," Art Hogan, chief market strategist at Jefferies & Co., said in an interview. "They are paying down their debt, their houses are not worth as much as they were two years ago and they're staring down the barrel of 10 percent unemployment."

As a result, Hogan said he expects the five-month stock market rally to "hit a bumpy patch."

Also on Friday, the Labor Department reported that July consumer prices remained stable compared with June but plunged 2.1 percent from July 2008.

Friday's tough consumer news followed a surprise drop in July retail sales and a record jump in home foreclosures reported earlier this week. At the same time, Hong Kong emerged from a yearlong recession on Friday, joining Germany and France, whose economies grew modestly in the second quarter.

Taken together, the week's economic data suggest that a global recovery will be staggered and sluggish in getting off the ground. Consumers -- the engine of the U.S. economy -- are catching few breaks.

Long-term price drops stoke fears of deflation -- the opposite of inflation and a warning sign of a contracting economy. Plunging prices typically go hand in hand with declining wages, creating the sort of persistent misery seen during the Great Depression. link.....