Consumer sentiment worsened sharply in early August, falling to the lowest index level since 1980, according to the Thomson Reuters/University of Michigan's preliminary reading.

COMMENTS:

KURT KARL, CHIEF U.S. ECONOMIST, SWISS RE, NEW YORK

It's a big drop. It's to be expected. The confidence was guaranteed to go down given all the upsets in the market. Hopefully this won't be the precursor of consumers' action in August.

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON

REUTERS

The destruction in the preliminary reading of Thomson Reuters/University of Michigan Index of Consumer Sentiment (CSI) which crumbled to 54.9 -- a score lower than even that reached during the recession (Nov '08, 55.3) --shows that even more Americans were defensive and thrifty in early August, in their second year of a frail recovery, than in the middle of the crisis. Obviously, more consumers became increasingly convinced that another recession was about to occur.

The CSI tanked 13.8% from July's score of 63.7, and that score itself was a double digit decline from the month prior--10.9%. The two months of growing pessimism come after May's slight bump in confidence whose suggestion that discretionary spending would pick up again disappeared just as quickly as it came.

The early pessimism can not be blamed on S&P's downgrade even thought it took place during the survey, because most of the decline had already been recorded (prior to last Friday). In other words, survey respondents immediately reported 1) more negative news of government's role in the economy, 2) a recently worsened economy, and 3) nonexistent income prospects in the year ahead, in the first week of August (before S&P's announcement on the 5th), with no further declines reported the second week of the survey (8th-12th) when life resumed the following Monday.

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