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 The ebb in sentiment came despite strong job gains over the last
three months, signs of an acceleration in wage growth as well as
cheaper gasoline prices, factors that economists had expected would
buoy consumer spending in the months ahead.
"As it stands, the pullback in confidence, along with the early-year
decline in retail sales, hints of slower consumer spending growth in
the first quarter," said Jennifer Lee, a senior economist at BMO
Capital Markets in Toronto.
The University of Michigan said on Friday its consumer sentiment
index slipped to 93.6 in early February from a reading of 98.1 in
January. The drop could reflect an uptick in gasoline prices early
this month.
Still, the index was at the second highest level since January 2007.
Economists had expected the sentiment index to hold steady.
U.S. financial markets were little moved by the data.
Households were in early February less upbeat about current economic
conditions as well as the outlook over the next six months.
The survey also showed a fairly big fall in household intentions to
purchase long-lasting manufactured goods, while plans to buy
automobiles were little changed.
There was also some softening in income expectations. A special
question in the survey showed a greater propensity to save, which
could explain the recent weakness in retail sales.
"The decline in income expectations is an unfavorable sign for
consumer spending," said Daniel Silver, an economist at JPMorgan in
New York.
"Increased savings is a possible explanation for why consumption has
disappointed in recent months despite consumers receiving a windfall
from the drop in gasoline prices, but it is hard to really know what
to make of the responses to this question because it was last asked
in 2010."
SPENDING LAG
Consumer spending, which accounts for more than two-thirds of U.S.
economic activity, weakened in December and January, surprising
economists who had hoped that lower gasoline prices and a relatively
robust jobs market would unleash a wave of discretionary spending.
But cheaper gasoline can still boost consumer spending, a sentiment
expressed this week by a top executive at PepsiCo Inc <PEP.N>.
"It takes a number of months before the consumer fully spends back
the so-called benefit from lower gas prices," said Hugh Johnston,
PepsiCo chief financial officer.
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"You are going to see that over the course of six to eight months
rather than an immediate change in consumer behavior, it just sort
of assimilates over time." Softer consumer spending has prompted
economists to lower their estimates for first-quarter growth. Still,
they are optimistic about prospects for the rest of this year.
Growth this year is expected to be the strongest since 2005, driven
in part by consumer spending, especially with the labor market
gathering momentum. The economy added more than a million jobs in
the last three months, a performance last seen in 1997.
"Consumer sentiment still remains at a relatively high level and
paints a generally healthy picture of consumer perceptions of the
economy," said Jim Baird, chief investment officer for Plante Moran
Financial Advisors in Kalamazoo, Michigan.
A separate report from the Labor Department showed import prices
recorded their biggest drop in six years in January as the cost of
petroleum and a range of other goods fell, pointing to muted
inflation pressures in the near term.
Import prices tumbled 2.8 percent last month, the largest decline
since December 2008, after sliding 1.9 percent in December. The
seventh straight month of declines in import prices also reflected
the dollar's significant strength against the currencies of the
United States' main trading partners.
"This report sets the stage for declines in both the producer and
consumer inflation in January," said John Ryding, chief economist at
RDQ Economics in New York.
"However, we believe the U.S. economy is experiencing an adjustment
to much lower energy prices and that this does not signal the
emergence of a sustained deflationary dynamic."In the 12 months
through January prices declined 8.0 percent, the largest
year-on-year drop since September 2009.
(Reporting by Lucia Mutikani; Additional reporting by Anjali
Athavaley in Bangalore; Editing by Andrea Ricci)
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