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US consumer sentiment posts surprise drop after surge in virus

[WASHINGTON] US consumer sentiment slumped in July, missing all forecasts, after the resurgent coronavirus nearly wiped out any emerging optimism around reopenings.

The University of Michigan's preliminary sentiment index decreased 4.9 points to 73.2, according to data Friday, reversing most of the prior month's 5.8-point gain. The median projection in a Bloomberg survey of economists called for a slight increase to 79, with estimates ranging from 75 to 85.

The gauge of current conditions dropped 3.9 points to 84.2, while a measure of expectations declined 6.1 points to 66.2.

The decline is a potentially troubling sign for the economy and underlines that confidence and consumer spending will be closely tied to whether the rapidly spreading coronavirus is brought under control. Americans' economic health also depends on whether lawmakers extend benefits such as the extra US$600 in weekly unemployment payments that are set to lapse this month.

"Unfortunately, declines are more likely in the months ahead as the coronavirus spreads and causes continued economic harm, social disruptions, and permanent scarring," Richard Curtin, director of the survey, said in a statement. Without further action by Congress, "another plunge in confidence and a longer recession is likely."

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Stocks surrendered early gains and Treasury yields were little changed after the figures.

Americans' view of the five-year economic outlook declined to the lowest level since 2014, while expectations for personal finances as well as current buying conditions for durable goods also declined.

One bright spot in the report was a greater share of consumers reporting an improvement in their personal financial situation, though the gains were concentrated among younger and upper-income households.

The decline in sentiment spanned partisan lines, with Democrats, independents and Republicans all seeing drops, though Democrats remained far more pessimistic than Republicans.

The Michigan survey was conducted June 24 through July 15. The final consumer sentiment report for July will be issued July 31.

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