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Oil Spike Deflates Consumer Sentiment, Forecasts

Five months of steady gains in consumer sentiment have been erased by higher oil prices, say economists reacting to the latest reading of the Thomson Reuters/University of Michigan (TR/UM) preliminary index of consumer sentiment. The index fell to 68.2 from 77.5; forecasters were looking for a smaller drop, about one point. The implications for future consumer spending are not favorable.

"All the good news in the labor market has been wiped out by rising oil prices," said economist David Semmens of Standard Chartered Bank, in the Financial Times.

The TR/UM measures lots of things, and sums them up in measures of sentiment about their current situation, as well as things to come.

For the present, sentiment fell a little, to 83.6 from 86.9 a month ago.

More to the point, says Bloomberg,

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 58.3 from 71.6. The 13-point decline was the most since September 2005, in the aftermath of Hurricane Katrina.
I would link readers to the most current report, but the Reuters / U of Michigan web site doesn't yet have it available. But here is a graph that shows the recovery through February, plus my estimate of where March fits in (the red dot):


Of course stocks are not reacting well to any of this, but it's hard to separate the effects of the disaster in the Middle East, the disaster in our state politics at home, and the record profits turned in by U.S. corporations. (I'm figuring the Japan earthquake happened after the survey was taken.)

And things were going so well -- retail sales were reported as rising for the eighth month a few days ago. But as I noted back in November, in this stock market, the micro giveth and the macro taketh away.

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