By Michaela Ross
High utility bills from record-setting winter weather, stagnant wages and rebounding gas prices pulled consumer sentiment down this month, indicating Americans remain cautious and reluctant to spend.
The final reading for March’s University of Michigan consumer sentiment survey came in Friday at 93, slipping from last month’s 95.4 and an 11-year high of 98.1 in January. The reading remains above March 2014’s figure of 80.
“While they’re feeling better about the economy, consumers are still remaining pretty conservative with their spending plans,” said Pam Longfellow, consumer insights director at Prosper Insights & Analytics, a consumer metrics marketing firm.
Economists have been left scratching their heads this winter as savings from historically low gas prices and solid consumer confidence haven’t resulted in more robust spending. Almost every consumer indicator declined or fell short of expectations last month, despite the average savings of more than $1.10 per gallon of gas compared to this time last year, according to AAA.
Retail sales have declined for the past three months, with February’s seasonally adjusted figure down a lower-than-expected -0.6 percent. Auto sales last month also performed worse than anticipated due to inclement weather, increasing just 5.3 percent instead of the projected 8 percent. Personal spending decreased for the second month in a row, down -0.2 percent and below the expected -0.1 percent decline. In contrast, the personal savings rate has increased over the past three months to 5.5 percent.
“Savings and paying down debt are still top of mind for consumers,” Longfellow said.
Meanwhile, a study by RBC Capital Markets last month found that wage levels are more important to spending now than in any recovery in the past 50 years. The New York research and consulting firm’s report showed an almost perfect correlation between earnings and consumer spending since the recession. This means that the two-thirds of economic activity made up by consumer spending is only growing as fast as incomes, reflecting a debt-wary public that continues to spend within their means and rely less heavily on credit cards.
Next week’s jobs report and wage gain data, then, will be highly anticipated as the best indicator of how consumer confidence and spending will swing next month. Gains were up a weak 0.1 percent in February with a year-over-year gain of 2 percent.
Outlooks for a strong wage report look positive. Aggregate weekly payrolls have shown steady increases and a survey by the National Federation of Independent Business last month reported 14 percent of managers are planning pay raises.
The University of Michigan’s consumer sentiment survey also reported more middle-income and older Americans have higher hopes for their paychecks rising in the months ahead.
“We’re starting to see that wage expectations are improving,” said Dr. Richard Curtin, chief economist for the survey in a conference call.
These indications for stronger incomes along with a booming jobs market are keeping the underpinnings of consumer confidence solid. Despite Friday’s decline, sentiment reached a 10-year quarterly peak of 95.5, its highest level since 2004. The index is also a full point ahead of Bloomberg analysts’ median estimate of 92 and almost 2 points above the month’s preliminary read of 91.2. It’s a positive sign that consumers are shedding some winter pessimism and will spend a little more freely this spring.
“I think that consumers will be spending more money – not profoundly more, but they will be spending more,” said Peter Morici, professor of economics at the University of Maryland.
Yvonne Eble, 40, and her daughter, Abby, felt like they had more spending money this month.
“The gas prices are lower, so you can do more things,” Eble said.
The antique shop owner and her daughter decided to drive to New York on vacation instead of taking the bus from their home in Sterling, Virginia this week. Abby held up several bags and said they had also spent time clothes shopping in Times Square.
Signs in an uptick in spending could come as early as next week with Monday’s release of personal income and expenditures data.
Declines in consumer spending and retail sales in the past several months echo the decline in consumer sentiment as cautious consumers weigh a stronger job market with higher utility bills, tepid wage gains and increasing gas prices.