US markets slumps as consumer spending falls

01 Jun 2013 Evaluate

The US markets fell sharply on Friday, though Wall Street closed another month of gains with a whimper after mixed economic reports. Consumers reduced spending in April at the fastest rate in almost a year and income growth softened, but lower inflation also gave them more bangs for their buck. The Commerce Department stated that Consumer spending fell a seasonally adjusted 0.2% last month. The decline in consumer outlays in April mainly stemmed from less spending on gasoline and other fuels. The unexpected decline surprised the street that was looking for an increase of as much as 0.3%. March data was previously estimated at 0.2% increase. On the other hand, a gauge on consumer sentiment this month reached the highest level since 2007, thanks to cheerier expectations and a rosier outlook on current economic conditions. The final May reading of the University of Michigan and Thomson Reuters consumer-sentiment index jumped to 84.5 - the highest level since July 2007 - from 76.4 in April. Separately, the Chicago purchasing managers index, jumped to a reading of 58.7 in May, up from 49.0 and well ahead of the consensus of 49.9. Readings above 50 indicate expansion. The May reading was the best since March 2012, while the April gauge was the worst in three and a half years. The 9.7 point rise from April to May was the largest since 1983.

Meanwhile, a group of banks that advice the Federal Reserve, has complained about the central bank’s asset purchase program, saying it has created systemic financial risks and potential structural problems for financial institutions. The bankers were also concerned about the Fed’s exit strategy, noting that unwinding the easy policy stance may be painful for consumers and businesses.

The Dow Jones Industrial Average lost 208.96 points, or 1.36 percent, to close at 15,115.60. The Nasdaq dropped 35.38 points, or 1.01 percent, to end at 3,455.91, while the S&P 500 edged lower 23.67 points, or 1.43 percent, to close at 1,630.74.

The Indian ADRs closed mostly in red on Friday, ICICI Bank was down 1.90%, HDFC Bank was down 1.65% and Tata Motors was down 1.24%. On the other hand, Sterlite Industries was up 0.07% and Infosys was up 0.03%.

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