Last updated: March 15, 2013 10:45 pm

US consumers unhappy about budget cuts

US consumers are unhappy with government spending cuts and pessimistic about the job market, their finances and overall economic growth, a survey showed on Friday.

Americans also felt the pinch of spiking petrol prices that drove up the cost of living in the US last month to the most in almost four years, according to the latest inflation figures.

However, broader inflation pressures remained mild, suggesting the US Federal Reserve has room to continue its dovish policies, while a rebound in factory output pointed to strength in the manufacturing sector.

The Thomson Reuters/University of Michigan’s index of consumer sentiment sank to 71.8 in March from 77.6 in February, surprising analysts who had predicted a rise to 78. That was the lowest reading since December 2011.

More than a third of people surveyed referred unfavourably to the government’s economic policies – a record high – as sequestration, or federal spending cuts worth $85bn this year, came into effect this month.

“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,” said Richard Curtin, the survey’s director.

“The frustrations expressed by consumers essentially involve how little consideration has been given to how the government’s inability to reach a compromise affects people’s economic situation.”

Consumers were more negative about current economic conditions, with that measure down to 87.5 from 89. They were also more downbeat about the future, with the measure of expectations dropping to 61.7 from 70.2.

The survey found pessimism on both the macro and personal scales. More people said the pace of US economic growth would deteriorate over the next year and the jobless rate would increase. Just 20 per cent said they expected their own finances to improve, a record low.

Analysts cautioned that the drop on confidence may be shortlived, however.

“[It] may be linked to the drum beat of negativism coming from the administration prior to sequestration,” said John Ryding and Conrad DeQuadros, of RDQ Economics.

“The hard economic data for February have been strong and jobless claims have fallen further in March thus far. The equity market has been rising and gasoline prices have eased. We would not be surprised to see confidence revised higher when the full month figures are reported.”

While petrol prices have declined this month, a sharp run-up in February was the main contributor to a stronger than expected increase in the cost of living.

The consumer price index rose 0.7 per cent, the most since June 2009, following a flat reading in January. Economists had expected a 0.5 per cent advance.

But the labour department said three-quarters of the increase was due to a 9.1 per cent jump in the petrol index – the most in three years, as prices rebounded from four months of declines.

“Aside from the spike in gasoline prices, which is already being reversed, it is hard to find any evidence of major price pressures in February’s US CPI figures,” said Paul Dales, senior US economist at Capital Economics.

Excluding food and energy, core prices rose 0.2 per cent last month after January’s 0.3 per cent gain. Food costs edged 0.1 per cent higher in February, driven by a sharp increase in the price of fruit and vegetables.

From a year ago, both overall prices and core costs gained 2 per cent. That is in line with the Fed’s target inflation rate, suggesting that the central bank has room to continue its policies meant to encourage job growth when it meets next week.

Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, said the petrol price jump was not the biggest concern for Americans.

“We doubt it will have a big impact on consumers’ spending; the fiscal tightening is much more important,” he said.

Also on Friday, the Fed said US industrial production rebounded in February in a sign of strength in manufacturing.

Production rose 0.7 per cent last month after a flat reading in January, beating estimates of a 0.4 per cent gain. Factories and utilities both upped their output, while mining production declined for a third month.

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