March 16 (Bloomberg) -- Confidence among U.S. consumers unexpectedly dropped in March, a sign rising fuel costs may be starting to weigh on the economic outlook.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 74.3, the lowest this year, from 75.3 the prior month. The gauge was projected to rise to 76, according to the median forecast of 70 economists surveyed by Bloomberg News.
Gasoline prices are up 17 percent since the beginning of the year and further gains may become a bigger strain on Americans’ pocketbooks. While the job market is healing, faster hiring and sustained improvement in confidence are needed to lift consumer spending, which accounts for about 70 percent of the economy.
“Consumers are pretty stretched at this point,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “Gasoline prices are limiting purchases. Inflation-adjusted incomes are still very weak. There are a lot of strains on consumers.”
Stocks erased earlier gains after the report. The Standard & Poor’s 500 Index was at 1,402.08 at 10:18 a.m. in New York, down less than 0.1 percent from yesterday’s close.
Estimates for the confidence measure ranged from 72.5 to 78.5, according to the Bloomberg survey. The index averaged 64.2 during the last recession. It averaged 89 in the five years before the 18-month economic slump that ended in June 2009.
Today’s report contrasts with the Bloomberg Consumer Comfort Index, released yesterday, which rose last week to the highest level in four years.
The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, climbed to 84.2 from 83 the prior month.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 68 from a one-year high of 70.3.
Rising gasoline prices may be behind the decrease in sentiment. The average cost of a gallon of regular gasoline at the pump rose to $3.83 on March 15, the most since May, according to AAA, the nation’s biggest motoring organization.
That was reflected in Americans’ view on inflation. Consumers in today’s confidence report said they expect an inflation rate of 4 percent over the next 12 months, the highest since May, compared with 3.3 percent in the prior survey.
Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 3 percent rate of inflation, the most since June, compared with 2.9 percent in the previous report.
The jump in fuel costs may be offsetting the positive influence from an improving job market. Payroll growth in February capped the best six months since 2006, and the unemployment rate stayed at 8.3 percent, a three-year low.
Stepped-up hiring prompted Fed policy makers this week to raise their assessment of the economy, while repeating that interest rates will probably stay low at least through late 2014.
Stocks are rising as more signs emerge that the economic expansion will be sustained. The Standard & Poor’s 500 Index is on pace for the best first quarter since 1998, after rallying 12 percent this year through yesterday.