NEW YORK – Looming war in Iraq and rising layoffs battered U.S. consumer sentiment to its lowest level in more than a decade in early March as widespread economic gloom shows few signs of lifting any time soon.
The steady erosion of confidence is hurting consumer spending, which drives two-thirds of the U.S. economy and is needed to fuel a robust recovery.
The University of Michigan's preliminary March index of consumer sentiment fell for a third straight month, to 75.0, its lowest since October 1992, from 79.9 in February, market sources told Reuters Friday. That was below expectations for a dip to 77.6.
"The spending numbers have been disappointing recently and many of the same factors that are affecting confidence are also affecting spending," said Henry Willmore, chief U.S. economist at Barclays Capital.
"But I think both the markets and the economy will perform much better in a post-war environment," he said.
With the launch of a war on Iraq widely expected in the next few weeks, analysts said consumer sentiment would likely be volatile in reacting to the duration and outcome of any conflict.
During the Gulf War in 1991 confidence rebounded sharply when the United States and its allies invaded to remove Iraq from Kuwait, but the gains were short-lived and confidence eroded again as the economy suffered through recession.
The current conditions index, which tracks attitudes about consumers' financial situation, fell to a preliminary reading of 87.1 in March from 95.4 in February. The expectations index, which gauges the 12-month outlook, fell to 67.2 from 69.9.
Financial markets mostly looked past the data as President Bush spoke about the Middle East conflict. Stocks pushed higher while safe-haven Treasuries held onto earlier gains and the dollar was mixed.
The bad economic news has been relentless recently for households: the labor market shed 308,000 jobs in February while retail sales last month plunged 1.6 percent. Meanwhile, surging gasoline and other energy prices have pinched incomes.
The one bright spot for consumers is mortgage rates which, at their lowest levels in about half a century, are spurring refinancings and allowing households to tap the rising value of their homes for extra income.
The preliminary University of Michigan consumer sentiment survey is based on telephone interviews with 250 households across the country on personal finances and business and buying conditions. The survey is rounded out to a total of 500 interviews at the end of the month.