Confidence among American consumers unexpectedly slumped in March, which may signal a cooling in spending, the biggest part of the economy.
The Thomson Reuters/University of Michigan preliminary sentiment index for March fell to 71.8, the lowest level since December 2011, from 77.6 in February. The gauge was projected to increase to 78, according to the median estimate of 67 economists surveyed by Bloomberg.
Concern may be starting to mount over the damage that automatic across-the-board federal spending cuts will cause the economy and hiring. That may keep tempering optimism created by record stock prices, a hiring pickup, and a housing rebound that have so far helped propel bigger-than-forecast gains in spending.
“There was a little bit of a sequester-news related dip in confidence,” said Jim O’Sullivan, chief U.S. Economist at High Frequency Economics in Valhalla, New York. “Certainly on the minus side you have fiscal tightening, but on the plus side you’ve got the improving labor market.”
Forecasts ranged from 70 to 82.5, according to the Bloomberg survey. The index averaged 64.2 during the recession ended in June 2009, and 89 in the five years prior to the 18- month slump.
Shares Fall
Stocks fell after the report. The Standard & Poor’s 500 Index dropped 0.4% to 1,557.21 at 10:14 a.m. in New York.
The Michigan survey’s current conditions index, which measures whether Americans think it’s a good time to make big investments and gauges consumers’ view of their personal finances, dropped to a preliminary 87.5 in March from 89 in February.
The preliminary index of expectations six months from now, which more closely projects the direction of consumer spending, slumped to 61.7 in March, the lowest since November 2011, from 70.2 the month before.
Consumers in today’s confidence report said they expect an inflation rate of 3.3% over the next 12 months, the same as in the prior two months. Over the next five years, Americans expected a 2.9% rate of inflation, down from February’s 3%.
Today’s report runs counter to other measures. Bloomberg’s Consumer Comfort Index has risen for six straight weeks to reach its highest level since April.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.