February didn’t just bring record-low freezing temperatures across the nation, it also brought a chilling effect to consumer confidence due to rising gas costs and harsh weather — ending the 11-year high since 2004.
The University of Michigan’s Surveys of Consumers conducted by the Survey Research Center, which examines the Index of Consumer Sentiment, shows that the month brought an index number dip to 95.4 from 98.1 (the highest since January 2004). February’s figures were the first decrease in seven months, according to Bloomberg. The consumer confidence index is used to judge how optimistic consumers are about the economy in relation to how they are spending/saving money.
“The underlying strength that has kept confidence at high levels has been job gains. While buffeted by harsh weather and lower gas prices, consumers have remained focused on gains in jobs and wages,” said Richard Curtin, chief economist of The University of Michigan’s surveys, in the study news release. “Consumers intend to increase their spending during the year ahead, but they also want to keep a tight rein on their debt as well as to increase their precautionary savings. Few consumers believe that gas prices will not increase in the future, and even fewer think the economy will no longer suffer downturns. Without more robust wage increases, consumers will increasingly condition their spending on the availability of reduced prices.”
The study cited that the small decline was because of “softening growth prospects for the national economy during the year ahead.” The harsh winter weather inevitably had an impact on businesses last month, and that was certainly reflected in the survey. The sentiment figure, in particular, dropped 10.1 points in the Northeast and 8.9 points in the Midwest — the regions most impacted by the recent dose of winter snowstorms.
The survey, which factors in the perspective of 500 people randomly selected from across the U.S., is used to judge sentiment about consumer confidence including: personal finances, business conditions and future buying plans. Overall, in February, consumer optimism was impacted by low gas prices and the poor weather conditions. Still, the decline from January was the highest in eight years.
“It is hard not to attribute some of the diminished confidence to the harsh winter weather,” Curtin said, but “consumers continued to evaluate their financial situation as well as their future financial prospects at the most favorable levels since 2007.”
While consumer confidence may have cooled slightly last month, consumer spending heading into the year was strong. Bloomberg reported consumer spending was up in the fourth quarter. Higher consumer spending helped gross domestic product grow 2.2. percent at the end of the year. Household spending was up 4.2 percent in Q4, which was the highest since the end of 2010, according to figures from the Commerce Department.
“The consumer looks relatively solid,” Michael Carey, chief economist for North America at Credit Agricole CIB in New York, told Bloomberg. “We’re looking at an increase in domestic demand, which is good because we’re one of the few economies out there that is growing relatively strongly.”