Consumer Confidence in U.S. Falls More Than Forecast on Rising Fuel Prices

Consumer sentiment in the U.S. dropped more than forecast in March, damped by higher gasoline costs and the effects of Japan’s natural disaster.

The Thomson Reuters/University of Michigan final index of consumer sentiment decreased to 67.5, the lowest level since November 2009, from 77.5 in February, the group said today. The median forecast of 67 economists surveyed by Bloomberg News projected a reading of 68.

Gasoline prices hovering near the highest levels since October 2008 are straining the finances of American households, whose spending makes up about 70 percent of the world’s largest economy. While unemployment has fallen for three months, Japan’s earthquake crisis led to a plunge in stock values, at one point wiping out all of 2011’s gains.

“Consumers are concerned about the rise in gasoline and food prices,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York who correctly forecast the drop. “People who are now shelling more money out of their pockets every time they fill the gas tank have a whole lot less left over for anything else they want to spend money on.”

Forecasts in the Bloomberg survey ranged from 65 to 71. A preliminary reading issued earlier this month was 68.2. The sentiment index averaged 89 in the five years leading up to the recession that began in December 2007.

Drop Foreshadowed

The decline in sentiment was foreshadowed by other gauges. The Bloomberg Consumer Comfort Index dropped last week to the lowest level since August as consumers’ assessment of the economy dimmed. The confidence gauge, which tends to inversely track fuel prices, slid to minus 48.9 in the week to March 20 from the prior week’s minus 48.5.

The economy grew at a revised 3.1 percent annual rate in the fourth quarter, up from a prior estimate of 2.8 percent, figures from the Commerce Department also showed today. The gain was led by a jump in consumer spending that will be hard to match early in the year as energy prices surge, economists said.

Stocks rose as forecasts by technology companies like Oracle Corp. beat analysts’ estimates. The Standard & Poor’s 500 Index rose 0.4 percent to 1,314.65 at 10:39 a.m. in New York. Treasury securities were little changed with the yield on the benchmark 10-year note down at 3.40 percent compared with 3.41 percent late yesterday.

A drop in the outlook led the decline in sentiment. The Michigan survey’s expectations for six months from now, which more closely projects the direction of consumer spending, fell to 57.9, the lowest level in two years, from 71.6.

Michigan Breakdown

The current conditions gauge, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, decreased to 82.5 from 86.9 the prior month.

Crude oil has surged amid unrest in Libya and the Middle East, pushing up costs of gasoline. The average price of regular gasoline at the pump climbed to $3.56 a gallon March 26, according to AAA, the nation’s biggest motoring organization.

Today’s confidence survey showed consumers said they expect an inflation rate of 4.6 percent over the next 12 months, compared with a rate of 3.4 percent projected in February. Over the next five years, the period tracked by Fed policy makers, Americans’ expectations for inflation rose to 3.2 percent, the highest level since August 2008, from 2.9 percent last month.

Fed Chairman Ben S. Bernanke, in his semiannual testimony before Congress this month, said sustained rises in the prices of oil or other commodities “would represent a threat both to economic growth and to overall price stability.”

Raising Prices

Higher fuel costs deter demand for air travel, according to Jeffery A. Smisek, chief executive officer of United Continental Holdings Inc. (UAL), who said his airline has increased fares with rising fuel costs.

“We’ve raised prices and we’ve had around a price increase that has been faster than I’ve seen in the 16 years in the business,” Smisek said during a March 22 conference call with analysts. “As you do raise prices, you do have an adverse effect on demand.”

The Chicago-based carrier was also the first major U.S. airline to say travel to Japan waned after the temblor, tsunami and radiation leaks. United Continental reported a “measurable decline” in demand for Japan-bound flights and signaled some flying may be cut as the crisis deepens at the country’s earthquake-damaged nuclear plant.

“We are monitoring the markets closely and will continue to provide the level of service that is warranted by demand and which can be operated safely,” a spokesman, Andrew Ferraro, said March 16.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz cwellisz@bloomberg.net

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