The consumer sentiment index slid in February as rebounding gas prices and cold temperatures shook household confidence.
The University of Michigan’s survey tumbled to 95.4 this month after peaking in January at an 11-year high of 98.1. That’s still far above 2014’s February reading of 81.6 and a bump-up from Bloomberg’s survey expectations of 94.0. Analysts say consumer confidence was shaken after a seven-month plummet in gas prices turned upward in the last several weeks.
“People are very sensitive to gas prices,” said David Kelly, chief global strategist at J.P. Morgan Asset Management. “When prices start to rise, you’ll see it reflected in sentiment.”
An uninterrupted upward swing in consumer sentiment numbers began in July 2014 during the same period gas prices started their steady decline.
Today’s lower confidence reading comes as the national average gas price ticked up to $2.37 per gallon. While this is $1.07 below last February’s price, it’s a significant increase from the $2.04 per gallon consumers were paying a month ago.
Cold weather also took a punch into the household confidence index, as record-setting snowfalls and freezing temperatures weighed down optimism in parts of the country.
“It is hard not to attribute the small February decline to the temporary impact of the harsh weather,” said Richard Curtin, chief economist of the University of Michigan’s survey. “Declines that occurred in the Northeast and Midwest were triple the average loss, while Southern residents grew more optimistic.”
The University of Michigan’s index is seen as a leading indicator that points to consumer behavior in the months ahead. February’s downturn can be seen reflected in other areas of the economy. Seasonally-adjusted retail sales fell 0.8 percent in January, down from a 0.7 percent increase in November 2014 and a 0.5 percent increase in October. Auto sales also dropped from about 1.5 million total vehicles sold in December to 1.1 million sold in January. And single-family housing starts were down 6.7 percent in January.
But Kelly and other economists said despite this month’s stumble, the consumer sentiment index is still at its highest levels since 2007. He believes last month’s bullish jobs report, which showed the U.S. economy adding 257,000 jobs and increasing average hourly earnings for private, nonfarm employees by 12 cents, is a more accurate indicator of where the economy is heading.
“Confidence will pick up over the next few months,” Kelly said. “The short term driver has been gasoline prices, but in the longer term, unemployment is more important than anything, and what we’re seeing in the U.S. economy suggests that the unemployment rate will fall further in the months ahead, and we will see stronger wage growth.”
The next U.S. job’s report is scheduled for release on Friday. Analysts are forecasting a slight dip in the unemployment rate to 5.6 percent from last month’s 5.7 percent.
Today’s GDP report also highlighted a strengthening economy. Revisions showed GDP expanded 2.4% in 2014, up from the average 2.2% growth in 2010-2013.