Fri Jul 30, 2004

NEW YORK (Reuters) - U.S. consumer sentiment improved marginally in July as Americans' outlook on the future of the economy brightened, according to a survey released on Friday.

An index of consumer confidence published by the University of Michigan climbed to 96.7 in July from 95.6 in June, according to sources who saw the subscription-only report. Economists had forecast a rise to 96.5.

"The Michigan readings were about as expected, not many surprises there," said Ram Bhagavatula, chief economist at Royal Bank of Scotland.

Financial markets showed little reaction to the data.

The current conditions component fell to 105.2 from 106.7, but the expectations measure rose to 91.2 from 88.5.

Other consumer gauges have pointed to improvement in recent weeks, a potential indication that a slowdown in economic activity in June was just a blip in an otherwise healthy expansion.

A barometer of sentiment compiled by the Conference Board, a private forecasting group, hit a two-year high this month as consumers started to feel better about their job prospects.

ABC News and Money Magazine's index of "consumer comfort" was steady in the latest survey period but has edged higher in recent weeks.

But that improvement had been based in large part on a decline in gasoline prices, so this week's spike in oil costs could threaten the increase.

Yet while confidence data are generally perceived as a proxy for future spending, many analysts note that there has been little correlation in recent years between what consumers tell surveys and what they do with their money.

Weakness in consumer spending slowed the U.S. economy during the second quarter, with gross domestic product growing only 3 percent compared with 4.5 percent in the first quarter.

It remains to be seen whether that slower clip of growth was a transitory phenomenon, as Federal Reserve policy-makers have argued, or whether it was the start of a trend.

The answer to that question could determine the speed at which the U.S. central bank raises official interest rates, with widespread repercussions for individuals and businesses.

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