NEW YORK U.S. consumer sentiment fell to its lowest level in five months in early March as gasoline prices rose, a survey released on Friday showed.
The preliminary March reading of the University of Michigan's consumer sentiment index for March came in at 68.2, down from 77.5 in February. That was the lowest level since October 2010 and was well off the median forecast of 76.5 among economists polled by Reuters.
The survey's barometer of current economic conditions was at 83.6, down from 86.9 the month before and below a forecast of 86.0. The survey's gauge of consumer expectations tumbled to 58.3 from 71.6, the lowest level since March 2009.
Inflation concerns were still high with the survey's one-year inflation expectation rising to 4.6 percent from 3.4 percent in February, the highest since August 2008. The survey's five-to-10-year inflation outlook rose to 3.2 percent from 2.9 percent.
CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:
"Much bigger decline than expected. I think this is significant--it's less significant than it would have been had it come out yesterday. It's very clearly a reaction to the rise in gasoline prices. We are in a confidence-driven recovery, not a jobs and income driven recovery. So if there's anything like this rise in oil and gas prices, things can turn sour pretty quickly.
"We're going to have to wait and see now whether oil prices continue to fall in reaction to the disaster in Japan. If that's the case, I imagine U.S. consumer confidence will stabilize pretty quickly and spending will hold up just fine. But it is going to be oil prices that determine what spending does for the rest of the quarter.
"Also it's important to put the confidence drop into context. We got retail sales data this morning from February and because of a sizable revision upward from January we're now looking at a much stronger quarter than we were going into that report. The bottom line is that the consumer was in very good shape thanks to the tax cut in December. It is likely that consumer spending will slow toward the end of the quarter. An eight-point drop in the index is significant."
PAUL RADEKE, VICE PRESIDENT AT THE MINNEAPOLIS-BASED KDV
"My first reaction is that this was impacted by energy prices given the sharp rise in the price of gas recently. There could be some seasonal adjustment needed here, but the number will take a backseat to the issues in Asia. People could look back on this number on Monday and digest it then, but this won't have an impact on the market today."
SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK:
"It is quite disappointing, it shows there is going to be some headwinds to consumer spending now that gasoline prices are on the rise from Middle East and North Africa worries. There could be some economic uncertainty going forward. The retail numbers this morning were positive but there is probably a big question mark over that now.
"In this release we saw the one-year inflation expectations jump through the roof, so (rising gasoline prices) are where that fall in confidence could be coming from."
VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON
"The loss of 9.3 points was primarily felt in the Expectations component, which plummeted to 58.3 from 71.6 (down 13.3pts) representing the fifth-largest decline in the series.
"The deterioration can be attributed to uncertainty about future gas prices....Implications of rising gas prices on consumers were riddled throughout the report....Respondents said that they expected prices to rise an additional 50 cents in the next two to three months. This undoubtedly contributed to spiking the year-ahead inflation expectations up to 4.6 percent...Although below the peak expectation of 5.2 percent reached in May 2008, the jump will surely spark commentary as to whether the Fed will look into these sentiments as indications that inflation expectations are becoming unanchored."
MARKET REACTION: STOCKS: U.S. stock indices edged lower after the University of Michigan data BONDS: U.S. bond prices were little changed FOREX: The U.S. dollar was steady