Michigan Consumer Sentiment Index Drops

Friday saw the U.S. Consumer Sentiment Index revealed, and it appears that confidence among customers in America has declined more than had been forecast in February from the highest level in a year, with the rising cost of gasoline taking its toll on household budgets. According to

, the Thomson Reuters / University of Michigan index of consumer sentiment dropped to 72.5 to 75 in January of this year. Bloomberg reported that a median estimate called for 74.8, and that the gauge averaged 89 in the five years leading to the 18-month recession that ended June 2009. The price of a gallon of gasoline increased by 22 cents this year, while concern over the extension of payroll tax cuts is also limiting confidence. In contrast though, the biggest employment gain in almost a year, less job cuts and an equities rally are underpinning sentiment and the spending that is accounting for approximately 70 percent of the economy. “It's likely due to the gas prices and some payback for the strong gains we've seen in recent months,” said Gus Faucher, a senior economist at PNC Financial Services Group. “The recovery is going to continue and spending will be good but not great.” So what is the cause of this decline ion confidence? Conventional wisdom says that, following the euphoria of the holiday period, the winter has truly set in, some of those credit card bills have arrived, and reality has hit home. Following the announcement of the figures, plus concerns to help Greece to avoid what would certainly be a catastrophic default were coming apart at the seams, the Standard & Poor's 500 Index dropped 0.9 percent to 1,339.45 this morning in New York. Bloomberg's own measure, the Bloomberg Consumer Comfort Index, which was released on Thursday, contrasts rather greatly with the Michigan index. The BCCI climbed to -41.7 in the period ending February 5 from -44.8 the previous week. Meanwhile, the Michigan survey's index of consumer expectations that takes us to the middle of the year fell to 68 this month from 69.1 in January. The index of current conditions, measuring the perceptions of U.S. citizens of their financial situation fell to 79.6 from 84.2 in January. The report showed that consumers are expecting an inflation rate of 3.2 percent over the next year, down from 3.3 percent last month. Americans are expecting a 2.9 percent inflation rate over the next half-decade, up from 2.7 percent last month. Again, it is the price of gasoline which really seems to be dragging consumer confidence down. A gallon of regular unleaded gas rose to $3.50 on Thursday, up from $3.28 at the end of last year. Fuel prices dropped to $3.21 in December, the lowest price in ten years. Thank the heavens, then, for the employment gains. Fewer firing and faster growth will always increase confidence and, with the unemployment rate declining in January to 8.3 percent, the lowest since February 2009, and the economy generating 243,000 jobs, the most in nine months. Consumer purchases increased 2 percent in the fourth quarter, though that is less than the median forecast of economists that were surveyed.