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US Consumer Confidence Tumbles

Posted by Joseph Trevisani on Feb 13, 2015 3:15:00 PM

American consumer confidence retreated in February as the two month plunge in retails sales seemed to reflect the caution of rising medical costs and a higher saving rate rather than the optimism of the steep decline in gasoline prices.

The University of Michigan's preliminary sentiment index fell to 93.6 from January's 98.1, that was the highest in over eleven years. Economists in the Reuters survey had forecast a score of 98.1, and the 4.5 miss was the largest on record.  Still the index was at the second highest level since January 2007.

The gauge for 'current conditions’ dropped to 103.1 in February from 109.3 in January, which was the best in eight years.  The measure of 'expectations' fell to 87.5 from 91.0 in January, the highest reading in almost a decade. 

Consumer spending, which accounts for about 70 percent of U.S. economic activity, weakened substantially after November.  Retails sales slipped 0.8 percent in January after December's unexpected 0.9 percent decline. The two month decline was the largest since October 2009. It surprised many analysts, who had anticipated that cheaper gasoline and steady job gains would embolden discretionary spending.

Health care expenses saw the largest increase of any consumption category in the fourth quarter, adding more than $200 billion to GDP.  Economic growth in the U.S. skidded by almost half in the fourth quarter, dropping to 2.6 percent annually from 5.0 percent in the prior three months. 

Several statistics, including retail sales, manufacturing and services PMI and durable goods order indicate that the fourth quarter slowdown likely continued into the New Year.

The saving rate rose in December to 4.9 percent of disposable income in December, the highest since July and up 0.6 percent on the month.

A separate report from the Labor Department listed the biggest drop in import prices in six years in January as the cost of energy and many other items fell, pointing to continued low inflation in the future.

The consumer price index was just 0.8 percent higher on the year in December. The PCE core rate, the Fed's preferred gauge was 1.3 percent higher. 

Import prices sank 2.8 percent in January, the largest decline since December 2008, in the midst of the financial crisis and recession, after sliding 1.9 percent in December. It was the seventh straight month of declines in import prices.

 

 Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

michigan sentiment feb 13

michuican feb 13

 

michigan exp feb 13

imports prices feb 13

 

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