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Aug 28, 11:38 AM EDT

Survey: Plunging stock prices hit US consumer sentiment


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AP Photo/Michael Dwyer

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WASHINGTON (AP) -- Plummeting stock prices have taken a toll on U.S. consumer confidence, though there are signs the setback may be temporary.

The University of Michigan says its consumer sentiment index fell to 91.9 this month from 93.1 in July. The index is still up 11.4 percent from a year ago.

The figures provide an early read of the impact on consumers from the 1,900 point drop in the Dow Jones industrial average over six days through Tuesday. Stock prices have since recovered some of those losses.

The University of Michigan surveys consumers throughout the month and so some of the responses were tallied as stock prices plunged. The University said it extended its interviews until Aug. 23.

Many economists were reassured by the limited drop in the index.

"The relatively small adjustment augers well for how consumers are taking the news," Tim Quinlan, an economist at Wells Fargo, said.

The survey also found that Americans remain confident about the U.S. economy and their personal finances.

Richard Curtin, director of the survey, said the decline in confidence occurred late in the month, as global financial markets fell sharply. The volatility was driven by mounting evidence that China's economy, the world's second largest, is faltering, and by growing uncertainty about the Federal Reserve's next move on interest rates.

William Dudley, president of the Federal Reserve Bank of New York, said earlier this week that he would watch the University of Michigan's index closely to get a sense of how Americans were reacting.

The drop is in contrast to the Conference Board's consumer confidence index, which was released earlier this week and found that confidence rose to its highest level in seven months in August. But that survey was completed before the stock market's gyrations.

About 61 percent of U.S. households own stocks, Curtin said, so plunging stock prices can broadly affect the consumer outlook. Most Americans own equities in their retirement accounts, so the impact of lower stock prices on actual spending is limited. And the dollar value of stock holdings is highly concentrated: the wealthiest 10 percent of Americans own 80 percent of shares.

As a result, consumer sentiment may bounce back, assuming the stock market stabilizes or recovers. Americans remain optimistic about their own financial health: 45 percent said their financial situation has improved, just below a recent peak of 47 percent in April. And half expect their incomes to increase in the year ahead.

In contrast to the stock market's violent fluctuations, recent economic data has largely been positive. The economy expanded at a 3.7 percent annual rate in the April-June quarter, the government said Thursday, a much healthier pace than its previous estimate of just 2.3 percent. Stronger consumer and business spending boosted output.

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