Confidence Among Consumers Falls as Elation Over Lower Fuel Prices Wanes
Consumer confidence fell more than forecast in February as the initial elation over a drop in fuel prices waned and Americans grew less optimistic about prospects for employment and income.
The Conference Board’s sentiment index decreased to 96.4 from a revised January reading of 103.8, which was the highest since August 2007, the New York-based private research group said Feb. 24. The median forecast of 80 economists in the Bloomberg survey called for a decrease to 99.5.
A recent increase in gasoline costs from a six-year low may be curbing the enthusiasm of some households after a plunge in prices last year and a pickup in hiring helped confidence surge. Further improvement in the labor market that propels bigger pay raises will be needed to support sentiment through 2015.
“All the confidence gauges are going to continue to give back ground as the novelty of lower gas prices dissipates,” said Mike Englund, chief economist at Action Economics in Boulder, Colorado. He is among the best forecasters of consumer confidence in the past two years, according to data compiled by Bloomberg.
Estimates in the Bloomberg survey ranged from 95 to 109 after an initial January reading of 102.9. The Conference Board’s gauge averaged 96.9 during the last expansion and 53.7 during the recession that ended June 2009.
The Conference Board’s gauge of present conditions dropped to 110.2 in February from 113.9 in the prior period. The share of Americans who said business conditions were good decreased to 26% from 28.2%.
The index of consumer expectations for the next six months fell to 87.2 from 97 in January. The 9.8-point slump was the biggest since a federal government shutdown in October 2013.
“Despite this month’s decline, consumers remain confident that the economy will continue to expand at the current pace in the months ahead,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement.
The group’s data showed Americans’ assessments of current and future labor-market conditions deteriorated. The share that said jobs were currently hard to get rose to 26.2% from 24.6%.
The proportion of consumers expecting more jobs to become available in the next six months declined to 13.4%, the lowest since November 2013, from 17.3% in January.
The share of respondents that said they expected their incomes to grow in the next half year decreased to 15.1% in February, the weakest reading since December 2013, from 19.5% last month.
The report showed purchase plans were mixed, with fewer respondents indicating they would buy a new car in the next six months and more saying they would probably buy appliances and homes.
Potbelly Corp., the purveyor of made-to-order toasted sandwiches, is among companies that have benefited from the rise in consumer confidence that started at the end of 2013. The Chicago-based chain beat analysts’ estimates for both sales and earnings in the fourth quarter, driven by an improvement in store traffic.
“As we begin 2015, we’re in a macro environment that’s currently favorable to our customers,” Chief Financial Officer Charles Talbot said in a Feb. 17 conference call. “Unemployment rates are low. Consumer confidence is up and more recently easing gas prices certainly mean more disposable income.”
While cheap fuel has been underpinning sentiment, a gradual increase in gas prices that’s taking place may make additional gains in confidence slower to come by.
A gallon of regular gasoline cost an average $2.31 on Feb. 23. While that’s still below last year’s peak of $3.70, it’s up from an almost six-year low of $2.03 in January.
Other sentiment indexes have shown signs of moderation. The University of Michigan preliminary gauge for February fell to 93.6 from 98.1 the month before. Bloomberg’s Consumer Comfort Index was little changed at 44.6 in the week ended Feb. 15 after falling from a more than seven-year high of 47.3 reached on Jan. 25.
Continued job gains and signs of sustained wage growth will be needed to support consumer confidence as gas savings ease. Payrolls climbed by 257,000 last month following increases in December and November that were bigger than previously reported, capping the biggest three-month jobs gain in 17 years.
After showing sparse momentum in 2014, average hourly earnings jumped 0.5 %, the most since November 2008, from the prior month. They were up 2.2% over the past year, the biggest advance since August.
