Consumer sentiment in the U.S. fell sharply as stocks declined and higher gasoline and oil prices fed fears about rising inflation in March, data from the University of Michigan’s monthly survey showed Friday.
The headline consumer sentiment index dropped 5.8 percent from a month earlier to 53.3, the lowest reading of the year. Compared with a year ago, the index is down 6.5 percent.
“Declines were seen across age and political party. Consumers with middle and higher incomes and stock wealth, buffeted by both escalating gas prices and volatile financial markets in the wake of the Iran conflict, exhibited particularly large drops in sentiment,” Joanne Hsu, the diretor of the survey, said in a statement.
The decline was mostly in the expectations for the U.S. economy. The forward-looking expectations index fell by 8.7 percent and the year-ahead inflation expectation climbed to 3.8 percent, up from 3.5 percent.
The index measuring consumer feelings about current economic circumstances declined by a smaller 1.5 percent. The measure of inflation expectations over the longer-run actually declined from 3.3 percent to 3.2 percent.
“Overall, the short-run economic outlook plunged 14 percent, and year-ahead expected personal finances sank 10 percent, while declines in long-run expectations were more subdued. These patterns suggest that, at this time, consumers may not expect recent negative developments to persist far into the future,” Hsu explained.
Stocks have fallen around six percent in March and the market has gone from expecting one or two rate cuts this year to pricing in the possibility of rate hike from the Federal Reserve. Gasoline prices are up 33 percent from a month ago. The price of oil has jumped above $100 a barrel and gone as high as $110.
Although consumers currently expect the hit to the economy and the rise in inflation to be short-lived, this could change if the war with Iran drags on.
“These views are subject to change, however, if the Iran conflict becomes protracted or if higher energy prices pass through to overall inflation,” Hsu said.
The March survey also suggests some political trouble for the Trump administration and Republicans eight months ahead of the mid-term elections. The index tracking expectations among Republicans fell sharply, from a reading of 100.3 to 94.2. This suggests that the war—and the subsequent decline in stocks and rise in energy prices—has dimmed Republican optimism about the economy. Republican views of current conditions saw a smaller decline.
Democrats and indepdents already had a dim view of the economy. For Democrats, there was a decline in both current conditions and expectations. Among independents, the view of current conditions improved slightly while the expectations gauge deteriorated.
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