Consumer sentiment declined in February to a four-month low as falling stock prices and weaker global conditions weighed on Americans’ views of the economy.
The University of Michigan’s preliminary index decreased to 90.7 from 92 in January, a report showed Feb. 12. The median projection in a Bloomberg News survey called for 92.3. While sentiment cooled for a second month, so did households’ long-term inflation expectations, which declined to the lowest in records to 1979.
A weakening of sentiment reflected the impact of the recent turmoil in equity markets, fueled by everything from declining oil prices to a dimmer global outlook. At the same time, households were more upbeat about their financial prospects because they expect inflation to remain low.
“Consumers tend to feel much better about not only their ability to consume in the near-term when they have a little bit more cash in their pocket,” Thomas Simons, a money-market economist at Jefferies in New York, said before the report. “But they also feel better about their longer-term inflation prospects, too, being somewhat lower.”
Retail sales climbed 0.2% in January, the third straight monthly advance, as Americans kicked off 2016 by spending on cars, clothing and online merchandise.
Consumer confidence estimates from 64 economists in the Bloomberg survey ranged from 89.9 to 94.
The report’s gauge of current conditions, which tracks Americans’ perception of their personal finances, fell to a three-month low of 105.8 from 106.4. Even with the decline, the share of households reporting that their financial situation had improved rose to 45%, the highest in six months.
“When asked about expected income gains during the year ahead, an increase of 1.6% was anticipated across all households, twice last month’s low of 0.8%, and just above the median expected increase recorded on average during 2015,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement.
The gauge of expectations six months from now dropped to 81, the weakest since September, from 82.7.
Americans expected the inflation rate over the next five to 10 years to be 2.4%, down from 2.7% and the lowest since the late-1970s, when the university began asking about price expectations.
In the next year, they anticipated inflation will be 2.5%, unchanged from January and down from 2.8% in 2015.
Persistent job growth continues to underpin sentiment. Payrolls climbed by 151,000 in January and the jobless rate dropped to an eight-year low of 4.9%, according to the Labor Department.
Strong hiring helped push wages up by 0.5% last month as employers started to feel more pressure to increase pay to retain or attract talent.
The Michigan report corroborates some of the data from the Bloomberg Consumer Comfort Index. In that survey, attitudes about whether it was a good time to spend advanced to the highest in nine months in the week ended Feb. 7.
The university’s data showed “buying plans remained favorable due to discounted prices and low interest rates,” Curtin said. “Favorable buying attitudes toward household durables and vehicles declined slightly from last month but remained more favorable than a year ago.”
What’s more, home-selling conditions were viewed by respondents as the most favorable since April 2006.