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Consumers feeling less confident about economy


WASHINGTON (Reuters) — U.S. consumer sentiment ebbed in August and residential construction rose less than expected last month, potentially dimming hopes of an acceleration in economic activity in the third quarter.

The data on Friday suggested that a recent spike in interest rates, in anticipation of the Federal Reserve tapering its massive bond purchases as early as next month, was starting to have an impact on households.

The Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment slipped to 80.0 from July’s six-year high of 85.1. August’s reading was the lowest in four months.

“People have been shocked by how much mortgage rates have risen in the past couple of months,” said Christopher Low, chief economist at FTN Financial in New York. “I think we will see an increasingly cautious consumer in the second half.”

Against the backdrop of higher mortgage rates, consumers were less upbeat about housing in August, the survey showed.

Rising borrowing costs also appear to be making builders cautious about breaking ground on new projects.

Housing starts rose 5.9 percent to a seasonally adjusted annual rate of 896,000 units, the Commerce Department said in a separate report. While that was a recovery from June’s decline, it was below economists’ forecasts for a 900,000-unit rate.

Long-term interest rates have risen by more than a full percentage point over the last three months on the view that the Fed will soon start trimming the $85 billion in monthly bond purchases that it has been making to keep borrowing costs low and stimulate the economy.

That in turn has prompted a rise in mortgage rates, which threatens to sap some of the strength from a housing recovery that has been pushing prices higher for more than a year.


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