U.S. Consumer Sentiment Unexpectedly Declined in Late February

(Bloomberg) -- U.S. consumer sentiment unexpectedly fell from an initial February reading and remained near the prior month's two-year low, signaling that Americans haven't quite shaken off the government shutdown and trade war.

The University of Michigan's final February sentiment index was 93.8, below the preliminary reading of 95.5 and missing the 95.9 median forecast in Bloomberg's survey of economists. The measure of current conditions weakened from the earlier reading to the lowest since November 2016 while expectations were lower than in the initial report.

Key Insights

• The report may signal consumption, which accounts for the majority of the economy, is poised for further moderation. A report Thursday showed fourth-quarter consumer spending grew at a 2.8 percent annualized pace, down from the prior period and below forecasts.
• Friday's report showed 25 percent of all consumers reported worsening finances, the highest proportion recorded since Donald Trump was elected president, according to the report.
• The data contrast with other February sentiment readings that were more upbeat after the government shutdown ended and stocks rallied. The Conference Board confidence index jumped the most in three years while the Bloomberg Consumer Comfort Index's monthly expectations gauge rose the most since 2008.
• The survey's gauges of inflation expectations, which Federal Reserve officials monitor closely, showed the anticipated rate for the next five to 10 years fell from the prior month to match a record low of 2.3 percent. Expectations for the year ahead were 2.6 percent, down from the prior month.
• Fed Vice Chairman Richard Clarida said in a speech Thursday that measures of expected inflation are at the lower end of a range consistent with the central bank's 2 percent target.

Official's View

“The bounce-back from the end of the federal shutdown faded in late February,” Richard Curtin, director of the Michigan survey, said in a statement. “While the overall level of
confidence remains diminished, it is still quite positive.”

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• Buying conditions for household durable goods ticked up to 158 from 155 the prior month.
• A measure of expected change in household income during the next year fell to a nine-month low of 1.7 percent.
• Upper-income households anticipated a 3 percent income gain, “well above those with incomes in the bottom two- thirds,” according to the report.
• A gauge of current personal finances weakened to a two-year low while the measure of expectations improved slightly.
• Surveys ran from Jan. 30 to Feb. 25, while the cutoff for the preliminary report was Feb. 13. The five-week U.S. government shutdown ended Jan. 25.

To contact the reporter on this story: Alexandre Tanzi in Washington at atanzi@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns

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