Sentiment Among American Consumers Cools From 11-Year High

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Consumer confidence cooled in February from an 11-year high, reflecting recent gains in fuel costs and bad winter weather in parts of the U.S.

The University of Michigan final index of sentiment fell to 95.4, the first decrease in seven months, from January’s 98.1 that was the highest since the start of 2004. The median projection in a Bloomberg survey of 58 economists called for 94 after a preliminary reading of 93.6.

Prices at the gas pump have climbed 31 cents a gallon this month and most consumers surveyed anticipate further gains, tempering optimism. Rising payrolls, low inflation and cheap borrowing costs will probably ensure Americans will sustain their spending, which accounts for about 70 percent of the economy.

“Gasoline prices are still extremely low although the slight increase we’ve seen recently may be hurting consumers a bit,” said Jennifer Lee, senior economist at BMO Capital Markets in Toronto. “Ultimately, the strong job environment and strong U.S. economy are playing a big role in supporting consumer confidence.”

The figures showed sentiment dropped 10.1 points among residents in the Northeast and 8.9 points in the Midwest, as snow piled up in those regions.

“It is hard not to attribute some of the diminished confidence to the harsh winter weather,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. Still, “consumers continued to evaluate their financial situation as well as their future financial prospects at the most favorable levels since 2007.”

Estimates in the Bloomberg survey ranged from 93 to 97.7. The index averaged 75.5 from the start of this expansion through last month, compared with 89 in the five years before December 2007, when the last recession began.

Current Conditions

The Michigan sentiment survey’s current conditions index, which takes stock of Americans’ view of their personal finances, dropped to 106.9 from the prior month’s 109.3 reading that was the highest since January 2007.

The measure of expectations six months from now decreased to 88 from 91.

Americans expect the inflation rate in the next year will be 2.8 percent, compared with 2.5 percent in January. Over the next five to 10 years, they expect a 2.7 percent rate of inflation, compared with 2.8 percent in January.

Gasoline Prices

The average cost of regular gasoline climbed to $2.37 on Thursday, according to AAA, the biggest U.S. motoring group. It has been advanced after sliding to $2.03 a gallon on Jan. 25, the cheapest since 2009.

The labor market remains supportive of consumer spending. Job gains in January capped the strongest three months of payroll growth in 17 years, Labor Department data show.

Household purchases climbed in the fourth quarter by the most in four years, a report Friday from the Commerce Department showed. The overall economy grew at a slower pace than initially estimated, restrained by a smaller gain in inventories and larger trade deficit.

Lowe’s Cos., the second-largest U.S. home-improvement retailer, is among companies saying sentiment, along with income gains and low mortgage rates, bodes well for their outlook. Lowe’s reported fourth-quarter profit that topped analysts’ estimates.

“Expected growth in the home improvement market is further supported by recent consumer confidence ratings and the results of our fourth-quarter Consumer Sentiment Survey, which revealed that homeowners’ views around personal finances and home values continue to improve,” Chief Executive Office Robert Niblock said during an earnings call on Feb. 25.

Other confidence data indicate Americans are less upbeat. The Bloomberg Consumer Comfort Index fell last week by the most since May 2014 as Americans’ views of the economy and their finances dimmed.

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