U.S. consumer confidence in Feb drops on falling inflation expectations

The University of Michigan index of consumer sentiment for the US dropped to 90.7 in the preliminary estimate for February, lower than consensus expectations of 92.3 and Barclays' forecast of 93. Current conditions dropped slightly to 105.8, as compared with previous 106.4, whereas the expectations component dropped to 81. These two drops were slightly due to a fall in the 12-month economic outlook of 97 and certain moderation in buying conditions for consumer durable goods of 159.

Other components of the survey were positive or stable. Current personal finances index rose to 115, while expected personal finances rebound to 126 from 124. The long-term economic outlook remained the same. Meanwhile, the long-term inflation expectations dropped 0.3 percentage points to 2.4%. Year-ahead price expectations were the same. If the drop in long-term expectations continues to be unrevised at the end of the month, the fall is expected to raise concerns amongst policymakers that have cited survey-based measures of inflation expectations as largely stable.

There are now three estimates of consumer confidence since financial market volatility increased in early January. While the confidence has dropped moderately from its year-end level, the overall gains have proven surprisingly strong to a declining stock market.

"We take this stability in sentiment as a positive sign and continue to expect a pickup in Q1 consumption growth, to 3.0%", says Barclays.