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Falling Consumer Spending Weighs on the Dow

John Maxfield
May 31, 2013

Blue-chip stocks are marginally lower this afternoon after a series of economic reports released today painted a conflicting picture of the financial health of the American consumer. With roughly an hour left in the trading session, the Dow Jones Industrial Average (INDEX: ^DJI) is off by 71 points, or 0.46%.

To start with the bad news: the Department of Commerce released data today suggesting that the economic recovery is still proceeding in fits and starts. According to its report, consumer spending fell by 0.2% in April -- the weakest reading since last May. Economists had forecast a decline of only 0.1%.

Now to the good news: A separate report showed that consumer confidence is at the highest level since 2007. The University of Michigan/Thomson Reuters Consumer Sentiment Index advanced to 84.5 this month from 76.4 in April. The consensus estimate called for a reading of 83.8.

These conflicting views provide fodder to bears and bulls alike, particularly as they relate to the Federal Reserve's ongoing analysis of QE3. "The surge in consumer confidence is exactly the type of economic jump-start the Federal Reserve intended to result from its aggressive policies," an economist noted about the University of Michigan survey.

"On the flip side, when the data comes in a little bit weak," a market strategist told Bloomberg News, "people start to wonder, 'well, maybe the Fed is going to stand there a bit longer.' The end result of t