Drop in consumer confidence takes toll on US stocks

Industrial production stays flat as investors eye data for signs Fed will trim stimulus

PUBLISHED : Saturday, 15 June, 2013, 12:00am
UPDATED : Saturday, 15 June, 2013, 4:11am

US stocks fell in midday trade yesterday, as reports showed consumer sentiment slid and industrial production was unchanged.

The Dow Jones Industrial Average was down 0.6 per cent.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 82.7 from a final reading of 84.5 last month, a report showed. The median forecast was for an unchanged 84.5.

Investors have been scrutinising economic data to determine whether growth is strong enough to prompt the Federal Reserve to scale back its stimulus measures.

Steady hiring gains coupled with rising equity prices and property values are underpinning Americans' confidence.

But further improvement from the 175,000 jobs added last month might be needed to help accelerate the consumer purchases that made up about 70 per cent of the economy, analysts said.

"The labour market does seem to be gaining some traction so far in 2013," said Kevin Cummins, an economist at UBS Securities.

Another report showed industrial production was unchanged last month as a drop in utility use offset gains in manufacturing and mining. Wholesale prices climbed last month for the first time in three months, reflecting an increase in fuel and food prices that failed to filter through to other goods.

The Federal Reserve will hold its two-day policy meeting next week, with chairman Ben Bernanke scheduled to speak after the central bank's decision on June 19.

Before the bounce on Thursday, the S&P 500 Index had fallen 2 per cent since May 21 when Bernanke said the central bank might scale back bond buying if the labour market improved "in a real and sustainable way".

Three years of earnings growth and stimulus from the Fed have helped push the gauge up 142 per cent from its bear-market low in 2009.

"All eyes are on the Fed in terms of what policy might be like three to six months from now," said Eric Thorne, an asset manager. "The Fed is unlikely to step in with any kind of potential damper. The fundamentals are improving, but the markets have improved so much so quickly that we may need to see some consolidation, some sideways movement in the market before the next major uptrend."