Consumer Confidence dropped sharply in July. The Conference Board's Consumer Confidence Index was 97.1, down 9.2 points from the revised 106.3 in June. The Index fell below economist's expectations of 101.5 and is the lowest reading since February. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.

Confidence dropped across both portions of the Conference Board index. The Expectations portion of the index, measuring future economic activity, registered 95.7 in July, down more than eleven points from June.

The Present Conditions Index, another factor in the total composite index, decreased 5.7 points from 104.9 in June to 99.2 in July. This index is a measure of how consumers perceive the current state of the economy.

The University of Michigan's Consumer Sentiment Index, a comparable index, also decreased in July to 88.1 from 92.4 in June. Both component indices fell. The Expectations Index was down 6.9 points from June to 81.0. The Present Conditions portion dropped slightly to 99.3 in July from 99.5.

Drops in the Expectations portion of the indices were largely responsible for the overall decline in each index. According to economists, stock market declines and corporate accounting scandals continue to push consumer confidence lower. Some slowing in consumer spending could be expected as there is little pent up demand, consumer wealth is declining, and the unemployment rate is expected to continue to increase through the remainder of the year.

Despite this, consumer-spending conditions are still favorable with low interest rates and retail price deflation increasing the value of household income. Further, economist's state that sharp moves in confidence, especially when caused by political or other non-economic events, are not always indicative of corresponding moves in consumer spending. Since consumer spending accounts for two-thirds of the U.S. economy, consumer confidence remains a critical component for economic recovery.