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Consumer Sentiment Falls

The University of Michigan's consumer sentiment reading declined again in early September, to 86.2 from 87.6 in August. This is a preliminary estimate based on only half of the full survey. The consensus forecast had been for a slight rise, to 88.0.

Most of the decline was in the current conditions index (to 95.9 from 98.5). Expectations were nearly flat, falling to 80.0 from 80.6. The overall index is at its lowest level since November's 83.9 reading.

However, the data don't seem to be affecting consumer purchases much. This discrepancy is likely related to concerns surrounding Iraq, as well as apprehension around the September 11 anniversary, says MMS International. The data are not enough to convince the Federal Reserve to loosen interest rates.

Retail Sales Rise

Retail sales rose 0.8% in August (0.4% excluding autos). The rise was more than the 0.5% expected by the market, with the surprise concentrated in the non-auto side, which was expected to be up 0.2%.

Increases in furniture, sporting goods and books, and building materials offset weakness at department and apparel stores. Service station sales fell on lower retail gasoline prices.

Retail sales are up 5.2% on the year, and 3.7% excluding autos. There is little sign that consumers are afraid to spend, another reason for the Federal Reserve to stay on hold.

Producer Prices Flat

Producer prices were flat in August, and are down 1.6% from a year earlier. The core producer price index (excluding food and energy) was down 0.1%, and down 0.3% from a year ago. The market had expected a 0.1% rise in the core rate. The data confirm the lack of inflation in the U.S. economy, giving the Fed free rein to react to recession.

Among the components, food prices fell 0.4%, while energy was up 1.0%. Crude prices jumped 1.6% (0.4% excluding food and energy), as drought drove up agricultural prices and oil prices rose on war fears. Intermediate goods were up 0.4% (0.4% core).

The headline rate will rise this fall as oil increases continue to come into the economy, but the core rate is expected to stay near zero.

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