/www.bloomberg.com/ By Andrew Ward
Washington, (Bloomberg) -- U.S. consumer confidence declined to the lowest in more than a decade, the University of Michigan said, as war talk and oil prices weigh on the economy.
The university's preliminary March sentiment index fell to 75 from 79.9 last month, people with access to the survey said. That's the lowest since October 1992, when it was 73.3.
``We are now at levels that are making me nervous,'' said Cary Leahey, senior economist at Deutsche Bank Securities in New York. Confidence is ``right at the cusp of levels that would suggest a consumer recession.''
Consumer spending accounts for more than two-thirds of the economy, and retail sales last month declined the most since November 2001. Economists are already marking down estimates of first quarter growth.
The economy will probably expand 2.6 percent this year, based on the consensus of 54 economists in the latest Blue Chip Economics Indicators survey. That is down from the 2.7 percent growth they forecast a month ago and less than the 3.3 percent average annual growth rate for the past 50 years.
The survey's preliminary reading for March was expected to decline to 78 from the final February index of 79.2, based on the median of 53 forecasts in a Bloomberg News survey.
Reasons to Be Gloomy
The university's current conditions index, which reflects Americans' perception of their financial situation and whether it's a good time to buy big-ticket items, fell to 87.1 from 95.4 in February. That was the lowest since 82.5 in October 1992.
The expectations index, based on optimism about the next one to five years, dropped to 67.2 from 69.9 last month. The February reading was the lowest since September 1993, when it was 66.8.
Nearly one-third of all respondents to the Michigan survey mentioned the potential impact of the war when asked to explain their economic expectations. Along with Iraq, a bleak job market and a 25 percent surge in gasoline prices this year are undermining confidence. ``Consumers have ample reason to be gloomy right now,'' said Stephen Stanley, an economist at RBS Greenwich Capital Markets in Greenwich, Connecticut.
The preliminary index is based on a survey of 250 households. The university will release this month's final results March 28 after surveying 500 households. The publicly funded university discloses the results to sponsors three days before releasing them to the public.
War's Effects
The U.S. has positioned more than 225,000 troops near Iraq, and President George W. Bush has said they will disarm Saddam Hussein by force if he doesn't voluntarily give up weapons of mass destruction.
The threat of war in Iraq and a strike in Venezuela forced oil prices up 59 percent in the past year to touch 12-year highs. The rise in the cost of oil is having ``wide-ranging'' economic effects throughout the economy, the Fed said in its latest survey of regional economic conditions, called the beige book.
Higher crude oil prices hurt consumers by raising the cost of gasoline and heating oil, leaving shoppers less money to spend on other goods and services.
``We're already feeling the war effect on spending,'' said Michael Niemira, an economist with Bank of Tokyo-Mitsubishi Ltd. in New York. With war keeping companies from investing or hiring, he said, ``consumers are deferring spending on big ticket items.''
Work at factories, which accounts for almost 90 percent of industrial production, fell 0.1 percent last month after rising 0.6 percent in January, the Federal Reserve reported today. A rise in utility and mining output pushed up overall industrial production 0.1 percent last month.
`Taking a Toll'
Federal Reserve policy makers meet Tuesday to decide whether interest rates should be lowered from a four-decade low of 1.25 percent to stimulate the economy. ``Consumer sentiment is not a major factor in Fed policy decisions as the Fed prefers to focus on actual consumer behavior,'' said John Ryding, chief economist at Bear Stearns Inc. in New York.
Still, consumers are spending less on products ranging from cars to clothing to vacuum cleaners. U.S. retail sales fell 1.6 percent in February, the Commerce Department said. A blizzard in the Northeast added to retailers' woes last month, forcing the closing of stores from Virginia to New Hampshire.
Maytag Corp., the No. 3 U.S. home-appliance maker, Tuesday said Hoover vacuum sales are falling as shoppers opt for cheaper products and retailers place smaller orders. AnnTaylor Stores Corp., a women's clothing retailer, said Wednesday that sales at stores open at least a year will decline in the quarter that began in February.
Auto sales have fallen the past two months. January new home sales dropped to the lowest in a year. Economists are scaling back forecasts of 2003 U.S. economic growth amid such signs of consumer weakness.
The economy has lost jobs in three of the past four months. Payrolls plunged 308,000 in February, the biggest drop since the terrorist attacks of 2001, as manufacturers, construction companies and retailers cut workers.
The Michigan data show the risks to the economy if the Iraq standoff is not resolved soon, said RBS Greenwich's Stanley.
``Consumer purchases seem likely to continue to erode as a war gets ever closer. The worst case for the economy will be a continuation of the slippage in the timeframe as has occurred this week,'' he said. ``If President Bush does not get this show on the road before the end of March, it will take a lot more than a tax cut to get this economy turned around again.''