Home-Heating Bills Put U.S. Consumers in Sour Mood: Economy
American consumers, whose wages are barely growing, became more glum in March as home-heating bills from plunging temperatures came due.
The University of Michigan said Friday its preliminary index of consumer sentiment decreased to 91.2, a four-month low, from 95.4 in February. The reading was less than the most pessimistic forecast in a Bloomberg survey of economists whose median projection was 95.5.
The drop in confidence was concentrated among lower- and middle-income households, the ones most affected by rising utility bills and higher prices at the gas pump. The report also showed consumer buying plans were little changed, indicating bigger paychecks will probably need to accompany increased hiring to spark larger spending gains.
“Where we go from here will depend primarily on what happens to the labor market,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. “As the wage numbers go up, that would be a plus for confidence.”
Stocks fell, sending the Standard & Poor’s 500 Index to its third straight weekly decline, as a dollar rally weighed on raw-material and industrial companies. The S&P 500 decreased 0.6 percent to 2,053.4 at the close in New York.
The Michigan sentiment survey’s index of expectations six months from now decreased to 83.7, the lowest since November, from 88 last month. The gauge of current conditions, which measures Americans’ views of their personal finances, fell to 103 in March, also a four-month low, from 106.9 a month earlier.
Winter Weather
Budgets were strained this month by higher home-heating bills. Last month, the eastern seaboard saw below-normal temperatures from Atlanta to New York and record snowfalls in New England. The National Oceanic and Atmospheric Administration’s data showed the snowiest month on record for Boston, while record-low temperatures for any February were reached in Chicago, Buffalo and Cleveland.
“Lower-income households really felt the weather quite a bit,” Richard Curtin, director of the Michigan Survey of Consumers, said on a conference call after the sentiment figures were released. “They complained more about the cost of heating their home and other utilities.”
Estimates of the 68 economists in the Bloomberg survey for the university’s measure ranged from 92 to 98. Even with the March decline, the gauge is above the 88.8 average for the five years leading to the last recession that started in December 2007.
Gasoline Prices
A smaller share of survey respondents in March cited positive news on the economy than at the start of the year -- 51 percent compared with 70 percent in January. The decline partly reflected a pickup in fuel prices.
The cost of a gallon of regular-grade gas was $2.44 as of March 12, up from $2.03 on Jan. 25 that was the lowest since March 2009, according to motoring group AAA. Prices had been declining steadily since $3.67 at the end of June.
“One of the things that was driving it was just rising gasoline prices,” said Drew Matus, deputy U.S. chief economist at UBS Securities LLC in New York, referring to the March reading on sentiment. “The general view on the U.S. consumer is going to be mainly driven by the improvement in the labor market.”
Americans expected an inflation rate of 3 percent in the next year, the highest since September, after 2.8 percent in February. Over the next five to 10 years, they expect a 2.8 percent rate of inflation, compared with 2.7 percent last month.
Producer Prices
Wholesale prices unexpectedly declined in February for a fourth month, reflecting cheaper food and a slump in profit margins among wholesalers and retailers. The 0.5 percent decrease in the producer price index followed a 0.8 percent slump a month earlier, the Labor Department said Friday.
Price pressures have eased as a rising dollar cheapens the cost of imports and crude oil weakens. Federal Reserve policy makers are awaiting signs that inflation will move back up toward their 2 percent goal as they consider raising interest rates for the first time since 2006.
“Inflation is very much controlled in this environment, and we have a rising dollar that’s going to put downward pressure,” said Robert Brusca, president of Fact & Opinion Economics in New York, whose forecast for a 0.2 percent decrease in the price index was among the closest in the Bloomberg survey. “The Fed very much wants to get inflation up into its target zone so that it can be more comfortable with where policy is, but it’s just not happening.”
Other Measures
The Michigan reading corroborates other measures of sentiment showing Americans’ enthusiasm about the outlook has tapered off since reaching an 11-year high of 98.1 in January.
The Bloomberg Consumer Comfort Index retreated to 43.3 in the period ended March 8 from 43.5 in the prior week. A measure of the buying climate was the weakest in a month, the report showed Thursday.
The Conference Board’s confidence index decreased to 96.4 in February from a January reading of 103.8 that was the highest since August 2007. The drop was led by diminished optimism about prospects for employment and income, according to the New York-based private research group’s data.
The share of respondents in the Conference Board’s survey that said they expected their incomes to grow in the next six months decreased to the lowest level since December 2013.
Labor Market
Job gains are keeping Americans upbeat even as their wages are making less progress. Employers added 295,000 workers to payrolls last month, more than forecast, and the unemployment rate dropped to 5.5 percent, the lowest in almost seven years, Labor Department data show.
Average hourly earnings rose 0.1 percent from the prior month, weaker than forecast, after advancing 0.5 percent in January. Earnings were up 2 percent over the past year, also less than projected and matching the increase on average since the expansion began in mid-2009.
Still-tame inflation, helped in part by a stronger dollar as U.S. growth outpaces foreign markets, is keeping some retailers such as Philadelphia-based Urban Outfitters Inc. upbeat about sales.
“With relatively inexpensive energy prices, little to no inflation, and a strong U.S. dollar, we see a positive environment in the United States for consumer spending,” Chief Executive Officer Richard Hayne said on a March 9 earnings call.