U.S. household confidence eased in early March as a surge in crude and retail fuel costs coincided with geopolitical tensions in the Middle East, according to the University of Michigan's Surveys of Consumers.
The survey's headline Consumer Sentiment Index registered 55.5 for March, down from a final February reading of 56.6. Economists surveyed by Reuters had expected the index to slip to 55.0.
The polling period ran from February 17 through March 9, and roughly half of the interviews were completed after the start of the U.S.-Israeli war with Iran. The conflict has boosted oil prices, and data from motorist advocacy group AAA showed gasoline prices have risen more than 21% to $3.63 per gallon since the war started.
"Interviews completed prior to the military action in Iran showed an improvement in sentiment from last month, but lower readings seen during the nine days thereafter completely erased those initial gains," said Joanne Hsu, the director of the Surveys of Consumers. "A broad swath of consumers across incomes, age, and political affiliation all reported declines in expectations for their personal finances, down 7.5% nationally."
Measures of inflation expectations provided mixed signals. The survey's gauge of consumer expectations for inflation over the next year held steady at 3.4% this month. Expectations for inflation over the next five years edged down to 3.2% from 3.3% in the prior month.
Below are concise takeaways from the report and the likely economic areas affected:
- Summary: The University of Michigan's Consumer Sentiment Index decreased to 55.5 in early March from 56.6 in February, with the decline timed to a rise in oil and gasoline prices after the start of the U.S.-Israeli war with Iran.
- Key impacts: Rising gasoline costs and deteriorating expectations for personal finances were recorded across income, age, and political groups; short-term inflation expectations remained unchanged while five-year expectations ticked down slightly.
The survey results indicate consumers grew more cautious about their personal financial outlooks during the latter portion of the polling window. While the one-year inflation outlook held at 3.4%, the slight decline in five-year inflation expectations suggests consumers foresee a modest reduction in longer-term inflationary pressure compared with last month.
Markets and sectors sensitive to fuel prices, including transportation and consumer discretionary spending, are likely to be affected by the higher gasoline costs reflected in the survey period. The decline in consumer financial expectations, reported broadly across demographic groups, points to increased household caution that could influence spending patterns.
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