This morning, the University of Michigan's preliminary March estimate for consumer confidence fell sharply to 71.8 from 77.6 last month.
Economists had actually predicted the index would rise to 78.0, despite the fact that the IBD/TIPP Economic Optimism Index, a good leading indicator for the Michigan series, took a similar dive last week.
Why are consumers lacking confidence?
According to the University of Michigan release, " Never before in the long history of the surveys have so many consumers spontaneously mentioned that the disarray in federal economic policy was the main problem facing the economy."
Andrew Wilkinson, Chief Economic Strategist at Miller Tabak, says today's number is "baffling" after stronger than expected retail sales this week and other positive data as of late.
"It looks like the dip in the preliminary reading of consumer confidence will foil the market’s record run, at least until we can understand what is driving consumers’ sudden downturn in forward-looking confidence," Wilkinson wrote in a note following the release.
Here is more from Wilkinson:
The magnitude of the slide in the expectations gauge is baffling following this week’s latest retail sales report that wholeheartedly refuted the notion that consumers were fazed by rising payroll taxes and higher gasoline prices. The expectations gauge slid to 61.7 from 70.2 and to its lowest since November 2011.
The latest reading is all the more odd since most other anecdotal evidence (including increased hiring) point to a big sigh of relief as the quarter gets underway. The unexpected slide also eclipses the low point made in December as the media whipped up a frenzy of fears surrounding the fiscal cliff.
One thing to note about this week's retail sales numbers is that sales at gas stations were the biggest gainers in February, driving the headline sales growth figure higher. That means that although consumers kept spending, a lot of it was on gas, thanks to higher prices.
On the current conditions sub-index, Wilkinson writes:
The current situation index fell from 89.0 to 87.5 yet remains above even its January level of 85.0, which was the lowest reading since the election. One possible explanation for the slide is perhaps the timing of the survey, which may have gauged responses from consumers around the time the sequester came in to effect, while gasoline prices have more recently come off the boil.
Next week's data releases mostly pertain to the housing market, but a few releases toward the end of the week that contain clues on hiring – like the Philadelphia Fed's monthly business survey and Markit's preliminary PMI reading – should add to the picture.
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- Andrew Wilkinson