March 14 (Bloomberg) -- U.S. consumer confidence sank to a 16-year low in March and Americans braced for higher inflation as the economy teeters on the brink of a recession.
The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 70.5 from 70.8 in February. The measure is the lowest reading since February 1992 and compares with an average 85.6 in 2007.
Record gasoline prices and the loss of 85,000 jobs so far this year are undermining consumer sentiment, pointing to weaker spending. The Federal Reserve, which this week announced new measures to free up credit, has signaled it will continue cutting interest rates to keep the economy from contracting.
``Consumer conditions have deteriorated dramatically since the end of last year,'' Lena Komileva, head of research at Tullett Prebon Plc in London, said before the report. ``A recessionary labor market, tighter lending, negative housing equity and a higher cost of living are bearing down on the consumer.''
Economists had forecast the measure would fall to 69.3, according to the median of 62 projections in a Bloomberg News survey. Estimates ranged from 65 to 73.
Inflation Expectations
Consumers polled in the Reuters/University of Michigan survey said they expect an inflation rate of 4.5 percent in a year, compared with the 3.6 percent projected in February.
A government report today showed consumer prices unexpectedly remained unchanged in February as fuel costs dropped. The Labor Department report showed so-called core prices, which exclude food and energy, were also little changed, the first time they didn't increase since November 2006.
The expectations index, which some economists view as an indicator of future consumer spending, declined to 61.4 from 62.4 last month. A measure of current conditions, which reflects Americans' perceptions of their financial situation and whether it's a good time to make big-ticket purchases like cars, rose to 84.6 from 83.8.
Consumers are facing the biggest drop in home prices in at least two decades, a decline of almost 20 percent in stocks since October and record energy prices. A gallon of regular gasoline rose to a record $3.27 and a barrel of crude oil increased to $111 this week.
Retail Sales
Retail sales fell 0.6 percent in February, the Commerce Department reported yesterday, for a second decline in three months.
Retailers are bracing for more bad news. American Eagle Outfitters Inc., the U.S. retailer of clothing for 15- to 25- year-olds, this week said profit will fall again in the first quarter after it posted a decline in the prior three months.
``We expect the first half of this year to remain challenging,'' Chief Executive Officer James O'Donnell said during a conference call with investors.
Consumer spending may grow at a 0.5 percent pace in the first quarter, the slowest pace since the 1991 recession, according to the median estimate of economists surveyed this month by Bloomberg News.
U.S. household wealth fell in the fourth quarter for the first time in five years and borrowing slowed as home values plunged and lenders restricted credit, Fed figures showed this week.
``Consumers are being squeezed from several directions,'' Fed Governor Frederic Mishkin said in a speech this week. Reduced household wealth, combined with a weakening job market and near-record fuel prices ``are likely to restrain spending growth in the period ahead.''
To contact the reporter on this story: Bob Willis in Washington at [email protected]
