Updated from 10:44 a.m. EDT

A final reading on the University of Michigan's consumer sentiment index for July came in better than expected Friday, despite a stock market swoon in the second half of the month.

"Considering what has transpired since the original survey was done, the results are encouraging," said Brian Jones, an economist at Salomon Smith Barney. "We ended the month on a high note."

The consumer sentiment index was 88.1, up from a preliminary result of 86.5 in the middle of the month but down from 92.4 in June. Economists were expecting a final reading of 86.5.

Since July 12, when the preliminary sentiment index was released, the

Dow Jones Industrial Average

has fallen 542 points, or 6.2%, while the


has lost 129 points, or 9.4%.Lately, the Dow was behind 15 points at 8,170.4, while the Comp was ahead 7 points at 1,247.5.

The current conditions index, which measures consumers' attitudes about the present, rose fractionally to 99.3 from a preliminary reading of 99. The expectations index, which tracks a 12-month outlook, was also higher modestly at 81 from an earlier result of 78.5, but lower than 87.9 in June.

"I think consumer sentiment held up surprisingly well, given the deep drop in equity prices over the last several months," said John Lonski, an economist at Moody's Investors Service. "It raises the possibility that the economy can emerge from the latest market battering in relatively good shape."

Over the past few weeks, investors have rotated out of some sectors that have been buoyed by the consumer. For the month,

Toll Brothers

(TOL) - Get Report

is down 24%, while

Pulte Homes

(PHM) - Get Report

is down 20%.

Anecdotally, vehicle sales for July are coming in strong, leading some economists to believe that the consumer is hanging tough. Big Three automakers

General Motors

(GM) - Get Report



(F) - Get Report




each announced new incentive programs in June.

"People's financial conditions have stayed relatively stable, despite the market's performance," said Diane Swonk, an economist at Bank One. "There is a mortgage refinancing boom going on, and it looks like July's vehicle sales will be the second-highest on record, on a seasonally adjusted basis."

Among economists, there is some debate about how good the index is at forecasting spending.

According to Peter Kretzmer, an economist at Bank of America Securities, changes in consumer spending trends have always been preceded by 10-point swings in the expectations index.

"We have had a $5 trillion decline in household net worth in the last two years, and more than half of it has occurred since the second quarter this year," said Kretzmer. "That means, over the next couple of years, the growth rate of spending is going to be a percent or so less than it otherwise would have been."

Brian Jones, of Salomon Smith Barney, however, does consider the index a predictor. "It has no impact on spending," he said, adding that car and home buying have benefited from lower interest rates.