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Consumer Sentiment Slips in First July Reading

clippedA preliminary measure of consumer sentiment released Friday shows confidence in the economy has dropped to its lowest level in the last four months.

The Thomson Reuters/University of Michigan Index of Consumer Sentiment measured 81.3 in its first July reading, falling more than a point from its final June reading of 82.5.

Analysts surveyed before Friday's release had predicted the index would climb up slightly to 83.

Paul Diggle, U.S. economist for research group Capital Economics, said it was fuel costs that brought down the latest measure.

"The rise in gasoline prices was behind the dip in consumer confidence in July," Diggle said in a note. "But rising equity prices and the improving labour market should help consumer confidence to increase before too long."

The decline in the headline index came from a decrease in the consumer outlook index, which fell 2.4 points to 71.1.

On the other hand, the index measuring confidence in the current economic environment ticked up 0.5 points to 97.1, helped in part by June's strong gain in payrolls.

Looking ahead, Diggle expects continued employment growth, along with declining mortgage interest rates, should boost consumer confidence in the months ahead.

Even with the drop, he added, the economy is still poised to pick up speed in the third quarter.

"Indeed, although the relationship is fairly loose, the latest estimate of consumer confidence is consistent with annualised consumption growth of between 2.0 percent and 2.5 percent in the third quarter. It's early days yet, but that would just about beat the 2.0 percent we have penciled in for the second quarter," he said.

UMich's final reading for consumer sentiment this month is scheduled for release on August 1, days after the Conference Board puts out its own confidence index.

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