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Consumer confidence falls in march 2005 Original Source Link: (May no longer be active)
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U.S. Economy: Consumer Sentiment Declines, Import Prices Rise
March 18 (Bloomberg) -- U.S. consumer confidence unexpectedly fell for a third month in March and import prices rose in February as oil surged and drove up the cost of gasoline.
The University of Michigan's preliminary confidence index dropped to 92.9, the lowest since November, from 94.1 in February, today's report showed. A reading of 94.9 was forecast for the month, according to the median estimate in a Bloomberg News survey of economists.
``The consumer is worried about rising gasoline prices,'' said Elisabeth Denison, a U.S. economist at Dresdner Kleinwort Wasserstein in New York, who predicted the university's index would fall to 93.
Import prices rose 0.8 percent in February, the most since October, reinforcing expectations the Federal Reserve will raise interest rates next week, Labor Department data showed today. The Fed raised the benchmark overnight bank lending rate six times since June to head off faster inflation. Consumers paying more for fuel may reduce spending on other goods and services.
``Price pressures are building and the Fed needs to continue to remove accommodation at every meeting,'' said Wesley Beal, head U.S. economist at IDEAglobal.com in New York.
Last month's rise in the import price index followed a 0.7 percent increase in January. The cost of all imported goods last month was up 6.1 percent from February of last year.
Inflation
Treasury prices fell for the first day in three after the import report. The benchmark 10-year Treasury note fell 3/16 point, pushing the yield up 2 basis points to 4.49 percent at 10:55 a.m.
Imported petroleum prices rose 3.9 percent in February, the biggest gain since October. Compared with the same month last year, the cost of petroleum was up almost 30 percent. Excluding energy, the index rose 0.2 percent after a 0.3 percent rise.
``This report shows a large increase in the price of imported crude oil, but no further acceleration of price increases for other goods in February,'' said Robert Mellman, an economist with J.P. Morgan Securities Inc. in New York.
The university's sentiment index has averaged a reading of 88.1 since 1978, when it was first issued monthly. The preliminary index is based on a phone survey of about 300 households. The final report for the month, due April 1, will reflect about 500 responses.
The consumer expectations index, based on optimism about the next one to five years, fell to 83.6, the lowest since May, from 84.4. The university's index of current conditions, which reflects Americans' perceptions of their financial situation and whether it's a good time to make big purchases, fell to 107.3 from 109.2.
Gasoline Prices
The average U.S. price for regular-grade gasoline rose to a record $2.055 a gallon on March 16, according to AAA, the largest U.S. travel organization. The latest average, based on prices from 60,000 gasoline stations, is up from $1.898 a month ago and $1.721 a year ago, Heathrow, Florida-based AAA said on its Web site. Retail diesel averaged $2.242 a gallon, up from $1.689 a year ago and 0.7 cent below the record set Nov. 1.
``Whether the increase in energy costs will start to negatively impact the consumer sector this spring remains to be seen,'' said Michelle Girard, an economist at RBS Greenwich Capital in Greenwich, Connecticut. ``So far, the spending pace has held up well in the face of higher gasoline prices, perhaps buoyed by stronger employment and income trends.''
Retailers such as Wal-Mart Stores Inc. and Kohl's Corp. posted their biggest sales gain in nine months in February, industry reports showed earlier this month.
``We've had record year after record year and we expect 2005 to be another record year,'' said Howard Bernick, chief executive officer of Alberto-Culver Co., the world's No. 1 seller of hair products to beauty salons, in an interview yesterday.
Increased Hiring
More hiring is boosting income growth and fueling more purchases. The number of Americans filing first-time jobless claims fell to a four year-low of 303,000 in mid February, and so far this month claims have averaged 323,000. That range is consistent with payroll gains of at least 200,000 a month, according to Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. Employers added 262,000 workers in February, the Labor Department reported March 4.
Economists at Lehman Brothers Inc. earlier today revised their first-quarter growth estimate to a 4.5 percent annual rate from 3.7 percent. They also forecast growth of 4 percent from April through June, faster than their previous estimate of 3.7 percent.
Higher Forecast
``The economy appears to have started 2005 with more momentum than anticipated,'' said Drew Matus, senior economist at Lehman Brothers in New York, in a note to clients. ``But the growth kick is likely to be temporary. Activity should start to cool this summer.''
Business investment, consumer spending and housing are ``all proving stronger than expected,'' Matus said.
Retail sales rose in February for a third month as consumers bought more from department stores, car dealers and electronics outlets, a report from the Commerce Department this week showed.
Economists at Morgan Stanley and Credit Suisse First Boston raised forecasts for first-quarter growth after the retail report. Morgan Stanley raised its estimate to 4.2 percent from 4 percent, and Credit Suisse moved to 4 percent from 3.7 percent.
Last Updated: March 18, 2005 11:02 EST
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