U.S. consumer sentiment unexpectedly fell in February from an 11-year high amid worries over slowing economic growth, suggesting a recent weakness in spending might last for a while.
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The ebb in sentiment came despite strong job gains over the last three months, signs of an acceleration in wage growth as well as cheaper gasoline prices, factors that economists had expected would buoy consumer spending in the months ahead.
"As it stands, the pullback in confidence, along with the early-year decline in retail sales, hints of slower consumer spending growth in the first quarter," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
The University of Michigan said on Friday its consumer sentiment index slipped to 93.6 in early February from a reading of 98.1 in January. Still, the index was at the second highest level since January 2007.
Economists had expected the sentiment index to hold steady.
Households early this month were less optimistic about current economic conditions as well as the outlook over the next six months. The survey also showed a fairly big fall in household intentions to purchase long-lasting manufactured goods, while plans to buy automobiles were little changed.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, weakened in December and January, surprising economists who had expected lower gasoline prices and a relatively robust jobs market to unleash a wave of discretionary spending.
Softer consumer spending has prompted economists to lower their estimates for first-quarter growth.
Still, economists remain optimistic about prospects for the remainder of this year. Growth this year is expected to be the strongest since 2005, driven in part by consumer spending.
"Consumers appear to be calibrating their assessment of current economic conditions and their expectations for the future, but the decline in sentiment isn't cause for alarm," said Jim Baird, chief investment officer for Plante Moran Financial Advisors in Kalamazoo, Michigan.
A separate report from the Labor Department showed import prices recorded their biggest drop in six years in January as the cost of petroleum and a range of other goods fell, pointing to muted inflation pressures in the near term.
Import prices tumbled 2.8 percent last month, the largest decline since December 2008, after sliding 1.9 percent in December. It was the seventh straight month of declines in import prices.
"This report sets the stage for declines in both the producer and consumer inflation in January," said John Ryding, chief economist at RDQ Economics in New York.
"However, we believe the U.S. economy is experiencing an adjustment to much lower energy prices and that this does not signal the emergence of a sustained deflationary dynamic."In the 12 months through January prices declined 8.0 percent, the largest year-on-year drop since September 2009.Crude oil prices have plunged nearly 60 percent since June as increased shale production in the United State and weak global demand caused a glut on the market.
At the same time, the dollar has strengthened significantly against the currencies of the country's main trading partners, helping to pull inflation further away from the Federal Reserve's 2 percent target.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)